ISLAMABAD: The Khyber Pakhtunkhwa (KP) government is set to complete its transition from an unfunded pension scheme to a fully funded model by 2045, official documents reveal.
The shift comes as all employees under the old scheme are expected to retire by then.
In 2022, the province replaced the traditional pension plan with a contributory Defined Contribution (DC) scheme for new recruits.
As of now, over 59,000 employees have been enrolled in the new system.
Rising Pension Costs Strain Budget
The province’s total pay and pension bill is projected to reach Rs875 billion in the fiscal year 2025–26.
This includes Rs680.39 billion in salaries and Rs194.97 billion in pension expenditures, comprising 41% of the overall Rs2.12 trillion budget.
The burden is severely restricting KP’s ability to invest in critical areas like infrastructure, education, and healthcare supplies.
Pension obligations alone have grown unsustainably, with the accrued liability projected to exceed Rs3.5 trillion.
KP now has over 600,000 active employees and 228,000 pensioners, up from 540,000 and 170,000 respectively in 2020.
Transition Strategy and Long-Term Outlook
KP is the first province in Pakistan to move toward a funded pension structure.
In the current fiscal year, the government contributed Rs1.5 billion as the employer’s share to the new scheme, with Rs2.4 billion planned for the next year.
Until 2045, the province will have to manage both the old Defined Benefit (DB) and new DC pension systems.
Despite the temporary financial strain, officials believe the change is essential for long-term sustainability.
Additionally, parametric reforms are under consideration to further reduce fiscal pressure.
These may involve changes to retirement age, pension calculations, and indexing formulas.
