Pakistan Finalizes Pension Fund Agreements with 16 Managers

The Pakistani government has finalized agreements with 16 pension fund managers to launch its Defined Contribution Pension Fund Scheme (DCPFS) for public sector employees. This initiative, announced a year prior, aims to address the escalating pension costs burdening the national budget. The selected managers, primarily banks and insurance companies, will establish and manage conventional or Shariah-compliant funds for state employees. These managers include prominent entities like ABL Asset Management, EFU Life Assurance, and Atlas Asset Management. The scheme mandates that fund managers provide death and disability risk cover for employees through a mandatory insurance plan. To support the scheme's implementation and oversight, the government will establish a Non-Banking Finance Company (NBFC). In the interim, the Ministry of Finance will fulfill the NBFC's functions and manage an online portal for employee pension accounts. Under the rules, employees cannot withdraw funds before retirement, and upon retirement, only 25% of the accumulated balance can be withdrawn, with the remainder to be invested for at least twenty years or until death. The government introduced these pension reforms, advised by international lenders like the World Bank, to curb rising pension liabilities. The scheme requires federal employees to contribute 10% of their pensionable pay, matched by a 12% contribution from the government, totaling 22%. This new system replaces the traditional pension model for new entrants. The scheme applies to civil employees appointed on or after July 1, 2024, and armed forces personnel appointed on or after July 1, 2025, though the latter's implementation has been deferred to 2026. Federal pension expenditure is projected to reach Rs1.170 trillion for FY2026-27, with a significant portion allocated to military pensions.