Federal Contributory Pension Scheme: FGDC Rules, Contributions & Benefits

From Non-Contributory to Defined Contribution: The Shift Explained

The scheme converts Pakistan's federal employee pension from a non-contributory, defined-benefit model into a contributory, defined-contribution model. Under the old arrangement, the state alone funded retirement and promised a fixed pension linked to final pay. Under the new scheme, both the employee and the government pay into an individual retirement account every month, and the eventual benefit depends on the accumulated contributions plus investment returns.

This is the central conceptual change. In a defined-benefit pension, the employer bears the investment risk and the payout is guaranteed by formula. In a defined-contribution pension, the member owns an account balance, and that balance - not a formula - determines the retirement income.

Legal Basis: SRO 1728(I)/2025 and the FGDC Rules 2024

The scheme is established by the Federal Government Defined Contribution (FGDC) Pension Fund Scheme Rules, 2024, notified by the Ministry of Finance through SRO 1728(I)/2025 dated 27 August 2025 and gazetted on 8 September 2025. The rules were developed under the Public Finance Management Act 2019 and are regulated within the Voluntary Pension System Rules 2005 and the Non-Banking Finance Companies and Notified Entities Regulations 2008.

The notification was circulated to every federal ministry, division and attached department through an Office Memorandum, and copied to the Auditor General of Pakistan, the Accountant General Pakistan Revenues (AGPR) and the State Bank of Pakistan.

The Rs 1 Trillion Pension Bill Driving Reform

The federal government's pension bill for FY2024-25 was projected at Rs 1.05 trillion, a 29% jump from Rs 821 billion in FY2023-24. Armed forces pension liabilities were expected to reach Rs 742 billion in FY2025-26, up 32% from Rs 563 billion two years earlier.

Because the state carried the entire liability, every new appointment added a future obligation with no matching fund behind it. The contributory scheme closes that gap by pre-funding each employee's retirement through monthly contributions.

An IMF and World Bank-Backed Structural Change

The reform was introduced on the recommendation of the International Monetary Fund (IMF) and the World Bank as part of the wider effort to curb Pakistan's fiscal deficit. The government backed the new system with an allocation of Rs 10 billion in the FY2024-25 federal budget and a further Rs 4.3 billion for FY2025-26 to seed and administer the fund.

Like other federal financing initiatives, the goal is a self-sustaining system rather than an open-ended budget line.

Civil Employees Appointed On or After 1 July 2024

The scheme applies to federal civil employees appointed on a regular basis on or after 1 July 2024. This covers all civil servants of the federal government, including civilians paid from Defence Estimates, across ministries, divisions, attached departments and subordinate offices.

The Finance Division's 11 August 2026 guidelines directed every ministry to prepare and verify lists of employees appointed from 1 July 2024 and update their particulars with the AGPR within 15 days. The Controller General of Accounts (CGA) then consolidates these lists by ministry, division, department and Basic Pay Scale (BPS).

Armed Forces Personnel and Civilians Paid from Defence Estimates

For the armed forces, the contributory scheme takes effect for personnel appointed on a regular basis on or after 1 July 2025. At the time of the original notification, armed forces contributions were still under consideration and remained at zero. Civilian staff paid from Defence Estimates are treated with the civilian cohort and come under the 1 July 2024 date.

Who Stays on the Old Defined-Benefit Pension?

Every federal employee appointed before 1 July 2024 remains on the defined-benefit pension, but with the reformed calculation rules introduced alongside the new scheme. Their pension does not disappear; it is recalculated under new formulas, including the 24-month average of emoluments.

The 10% Employee and 12% Government Split (22% Total)

The employee contributes 10% of pensionable pay, and the government contributes 12%, for a combined 22% credited to the employee's individual pension account each month.

This 12% figure corrects an earlier announcement. In August 2024 the government had set its share at a provisional 20%; the final rules notified through SRO 1728(I)/2025 reduced it to 12%. Several older articles still cite the 20% rate, so treat 10% + 12% = 22% as the operative figure as of the final notification.

What Counts as Pensionable Pay?

Contributions are calculated on pensionable pay - the pay elements that count toward pension, which centre on basic pay rather than the full take-home package. Allowances and other emoluments are handled according to the notified definition in the rules.

Because both contributions and, for the old scheme, the benefit formula reference pensionable emoluments, the distinction between basic pay and total salary matters: a 10% deduction on basic pay is materially smaller than 10% of gross salary.

Licensed Pension Fund Managers and the Voluntary Pension System

The fund is managed by licensed pension fund managers - Non-Banking Finance Companies (NBFCs) authorised by the Securities and Exchange Commission of Pakistan (SECP). The scheme operates within the Voluntary Pension System (VPS) Rules 2005 and the Non-Banking Finance Companies and Notified Entities Regulations 2008.

On 2 August 2026 the Finance Division published the list of eligible pension fund managers that had executed agreements with the federal government. The government's portion is budgeted annually, and agreements require fund managers to support electronic transfer systems and insurance coverage against death or disability.

AGPR, CGA, and the Contribution Recordkeeping Chain

The AGPR sits at the centre of the administration: it deducts the employee's contribution, records the government's matching share, and remits both to the chosen fund manager. The Controller General of Accounts (CGA) coordinates the consolidated, ministry-wise register of covered employees.

Each employee's salary slip carries the individual contribution, the government contribution and the total accumulated amount, so members can track their account monthly.

The 25% Withdrawal Rule at Retirement

At retirement, the employee may withdraw up to 25% of the accumulated account balance as a lump sum. The balance available at that point equals every contribution made (employee plus government) plus the investment returns earned over the years.

This is the most important practical difference from the old scheme: the payout is the account value, not a percentage of last salary. A longer career with steady contributions compounds into a larger balance.

The 20-Year / Age-80 Minimum Drawdown Period

The remaining balance - the portion not withdrawn as the 25% lump sum - must stay invested. Under the notified rules, the remainder is drawn down over a period of at least 20 years or until the member reaches age 80, whichever comes first, within the Voluntary Pension System framework.

Employees cannot withdraw their contributions before retirement at all. The scheme is designed to convert the accumulated fund into retirement income rather than a single cash-out.

The 24-Month Average Emoluments Formula

For employees still on the defined-benefit pension, the calculation base shifted from the last drawn pay to the average of the last 24 months of pensionable emoluments. This removes the incentive to engineer a final-year pay spike and lowers the average base for most retirees.

Gross pension is then computed on qualifying service (up to 30 years) as a notified percentage of that average, with commutation and family pension rules applying separately. Annual pension increases are now maintained as separate amounts rather than being compounded into the base pension.

The One-Pension Rule and Early-Retirement Reduction

Two further reforms apply to the old-scheme population. First, the one-pension rule: a pensioner may draw only one pension at a time, and where a person qualifies for multiple pensions they must choose the highest. Second, early retirement carries a reduction: voluntary retirement after 25 years of service is possible, but the pension is reduced on a per-year basis to discourage premature exit.

Superannuation remains at age 60. These changes, like the new scheme, were notified through Finance Division office memoranda during 2024-25.