EDITORIAL: Reports suggest that the government intends to implement the Defined Contributory Pension (DCP) in the budget for next fiscal year for those recruited by the armed forces from 1 July 2026 onwards – a policy that has been effective from 1 July 2025 for new recruits in the civilian arm of the government. The economic objective of this policy is salutary: to render the annual pension budget sustainable.
Total allocation for pensions was budgeted at 1.066 trillion rupees in the ongoing year – a whopping 6.4 percent of total current expenditure against 716 billion rupees budgeted for Benazir Income Support Programme (BISP) earmarked for the poor and vulnerable (or under 4.1 percent of the total current expenditure) in spite of rising poverty levels to an appallingly high - nearly 43 percent if the calorific value method is used.
The budgeted and realised amount for pensions last fiscal year was 1.014 trillion rupees (perhaps the only revised outlay at the end of the year that precisely matched its budget). This accounted for 6.18 percent of the revised current expenditure and 5.8 percent of the budgeted current expenditure in 2024-25.
The percentage decline in the revised estimates is therefore not due to a decline in total pensions, which incidentally was not expected as the retirement of those civilian recruits hired last year is too far along to make a difference, but due to a decline in the mark-up attributable to lower policy rate as well as rescheduling of loans.
The need to reform the pension system and, like in other countries, make it a contributory system, was acknowledged during several previous administrations. Task forces were set up, studies carried out at state expense, and the consensus of all was to initiate a DCP.
Sadly, reforms were continuously postponed with critics alleging that the 7 percent of the total work force that is employed by the state and paid for at the taxpayers’ expense, used its considerable influence and prevailed upon the government of the day to defer the decision. This is reminiscent of the agricultural income tax that was imposed in the provincial budgets last year, a key International Monetary Fund condition, to be effective from 1 January 2025 and yet its collections are so poor that the Fund has now insisted that collections be more in synch with the income of the rich landlords.
Reports suggesting that the government is considering not only raising the salaries of its employees but also pensions are extremely disturbing and make a mockery of this reform that has been so long in coming.
To conclude, there is concern that the DCP, as applied from last year, may not begin to show dividends before thirty to forty years as and when their retirement becomes due; and additionally, even if these funds are meagre, their collection still allows the government to potentially finance other non-development current expenditures, which should not be the objective.
That the government began implementation of DCP last fiscal year must be supported; however, it is hoped that the Finance Minister would share the total amount collected from those newly recruited by the civilian government, and reveal whether this amount has been placed in a dedicated pension fund to be used for investment purposes or whether the treasury operates the amount collected on the basis that money is fungible.
Copyright Business Recorder, 2026
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