Khyber Pakhtunkhwa Leads Pension Reform: A New Era for Civil Servants

The new system, named the "Contributory Pension" scheme, involves monthly deductions from employees' salaries based on their pay scale, with the provincial government contributing an equal amount.

The provincial government of Khyber Pakhtunkhwa has amended the Khyber Pakhtunkhwa Civil Servants Act 1973 to introduce significant pension reforms. This new system, replacing the existing pension framework, has been formally notified and is now in effect.

The new pension scheme, initially applicable to employees joining after June 2022, has now been extended to include new officers in the provincial bureaucracy, making Khyber Pakhtunkhwa the first province to abolish the traditional pension system for government employees.

What is the New Pension System?

The Khyber Pakhtunkhwa government has abolished the old pension system and implemented a new one wherein employees recruited after June 2022 will not receive a monthly pension. Instead, they will be paid a lump sum at retirement. To facilitate this, a separate bank account will be maintained to ensure that the treasury is not overburdened at the time of payment.

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The new system, named the "Contributory Pension" scheme, involves monthly deductions from employees' salaries based on their pay scale, with the provincial government contributing an equal amount.

According to sources in the provincial finance department, a special pension bank account is being opened from which future pension payments will be made. This reform is driven by the growing burden of pension payments on the treasury, which has been hampering development projects.

How Will Payment be Made in the Contributory System?

The Finance Department of Khyber Pakhtunkhwa explains that under the new contributory pension system, employees will receive their pension as a lump sum either at the time of retirement or upon leaving service.

The monthly CP fund will be deducted from employees' salaries based on their basic pay scale, and the government will contribute an equal amount. The accumulated funds will be kept in a dedicated pension account, which will also earn interest, thereby ensuring that employees receive their lump sum payments without straining the exchequer.

This dedicated pension account is safeguarded to ensure that the funds are not used for other purposes, and the interest accrued will further benefit the employees.

The finance department also notes that the federal government is considering a similar pension reform, potentially leading to a uniform pension system across the entire country.

The New System Will Provide a Higher Lump Sum Amount

Sources indicate that under the new CP system, employees will not receive a monthly pension. Instead, they will receive a larger lump sum payment than what would have been accumulated under the old system. Additionally, the new system will offer interest-free loan facilities, enabling employees to undertake projects such as home construction before their retirement.

This reform is expected to provide financial stability to the employees and reduce the pension burden on the provincial treasury, facilitating more development work in Khyber Pakhtunkhwa.