How government pension is calculated in Pakistan (2026): formula, commutation and the new rules

To use a pension calculator for a Pakistani federal government job, you need one formula: gross pension is 70% of your average pensionable pay over the last 24 months, after 30 years of qualifying service. With 10 to 29 years you get a proportionate share. You can then commute up to 35% of gross pension for a lump sum, and the rest is your monthly pension. Federal pensions rose 7% from 1 July 2026.

How is government pension calculated in Pakistan?

Federal pension follows the Finance Division’s pension rules, which the State Bank of Pakistan (SBP) summarised from the official Compendium of Pension Rules:

Since 1 January 2025, “average emoluments” means the average of the pensionable emoluments you drew in your last 24 months of service, the Finance Division’s OM of that date says. Before that, pension was based on your last pay. A Finance Division clarification of 4 March 2025 adds:

• The usual increment in your year of retirement is not part of the 24-month average. It is added after averaging.
• A part month counts as a full month in the average.

Ad-hoc relief allowances don’t count. The 2026 pay OM says ARA-2026 is not treated as emoluments for pension or gratuity.

Pension calculator: a worked example

Take a federal employee who retires at 60 with 30 years of qualifying service and average pensionable emoluments of Rs 1,50,000 a month over the last 24 months. Our calculation from the formula:

The same average pay with fewer years:

These figures are our calculations. The lump sum depends on the commutation factor for your exact age, so treat them as estimates.

How does commutation work?

Commutation means giving up part of your monthly pension in exchange for a lump sum now. You can commute up to 35% of gross pension, at retirement or later, SBP notes. The lump sum is the commuted monthly amount times 12 times a commutation factor from an official table based on your age. SBP’s example uses a factor of about 12.4 for someone retiring at 60.

In SBP’s example, the commuted part was restored about 12 years after retirement. The Finance Division’s January 2025 OM confirms that once it is restored, it becomes part of your baseline pension.

Can I retire early with pension?

Yes, after 25 years of qualifying service, but it costs you. The 2024 reforms, approved by the Economic Coordination Committee and reported by Dawn in June 2024, cut gross pension by a flat 3% a year for the time between your retirement and your superannuation date, capped at 20%. A Finance Division clarification of 3 January 2025 confirms the 3% reduction for anyone who applied for voluntary retirement on or after 10 September 2024, including those with more than 30 years of service.

Example, our calculation: retiring 5 years early with 25 years of service and the same Rs 1,50,000 average gives gross pension of Rs 87,500, less 15%, which is Rs 74,375 before commutation.

How do pension increases work now?

The Finance Division’s OM of 1 January 2025 changed how increases are given:

• Your net pension at retirement (gross minus the commuted part) is your baseline pension.
• Each future increase is given on the baseline and kept as a separate amount.
• A Pay and Pension Committee reviews the baseline every 3 years.

For 2026-27, the OM of 29 July 2026 gives 7% on baseline pension from 1 July 2026, also to people retiring on or after that date and to family pensioners. In the worked example above, that is 7% of Rs 68,250, or Rs 4,778 a month, our calculation. The same OM says the 15% increase of 2022 and the 7% of 2025 remain admissible to people retiring from 1 July 2026. Ask your accounts office how those are added to your case.

The federal budget for 2026-27 sets aside Rs 1.169 trillion for pensions, up from Rs 1.055 trillion in 2025-26.

Can I get more than one pension?

Usually not. Since 1 January 2025, a person entitled to more than one pension must choose one. A serving federal employee who becomes entitled to a pension doesn’t get it while in service. The exception: a spouse can draw a late husband’s or wife’s pension on top of their own pay or pension. A March 2025 clarification says the rule applies to people re-employed on or after 1 January 2025, not to those already drawing two pensions.

The 2024 reforms also limit ordinary family pension to 10 years after the death or ineligibility of the spouse, or for life for disabled children, Dawn reported.

Do new government employees get a pension?

Not the old kind. Federal civil employees appointed on a regular basis on or after 1 July 2024 are in a contributory pension fund instead; for the armed forces it starts from 1 July 2025.

Under those rules, Dawn reports, you can’t withdraw before retirement. At retirement you can take up to 25% of your balance; the rest stays invested under the Voluntary Pension System rules for at least 20 years or until age 80, whichever comes first. In August 2026 the Finance Division told ministries to register all employees appointed since 1 July 2024 with AGPR within 15 days, as the scheme is now running.

This works much like a private pension fund. Private-sector workers get the EOBI pension instead.

Do these rules apply to provincial employees?

This guide covers federal rules. Provinces have their own pension rules and their own increases: Punjab proposed 3.5% for 2026-27, while Sindh, KP and Balochistan announced 7%. See our salary increase 2026 guide for the details.

More guides: salary increase 2026-27, minimum wage in Pakistan, Behbood Savings Certificates, investment options in Pakistan, Investing.