The Government of Khyber Pakhtunkhwa (GoKP) has been facing a growing pension burden, with costs rising from just 1% of the budget in 2003-04 to 14% in 2020-21. This has left fewer funds available for development projects such as schools, hospitals, and roads.

To tackle this challenge, GoKP’s Finance Department, with SEED’s support, introduced pension reforms to slow down rising costs. These reforms raised the early retirement age for civil servants and adjusted family pension benefits. Most importantly, KP became the first province in Pakistan to introduce a new pension system (Defined Contribution Pension Scheme – DCPS) for all new government employees from June 7, 2022 onward. Under this system, both employees and the government contribute to pension benefits, making it more financially sustainable.

SEED is now helping the Finance Department fine-tune this system by automating payments, improving reporting and monitoring, and training staff to manage pensions more efficiently. These reforms are expected to save PKR 700 billion ($4.3 billion) over 30 years, freeing up more funds for development. Additionally, changes to the early retirement age alone are projected to save PKR 124 billion in the next decade. Through these efforts, KP is leading the way in creating a sustainable, transparent, and well-managed pension system that ensures financial stability for the province.