Budget 2025-26: Federal Employees to Receive 10% Pay Raise, Pension Up by 7%

ISLAMABAD (Web Desk) — The government has increased the salaries of all federal employees (from Grade 1 to Grade 22) by 10%. Retired government workers will also get a 7% increase in their pensions. These changes were announced in the budget for the financial year 2025-26, which was presented on Tuesday.

To reduce spending on pensions, the government introduced some new pension rules. They removed several allowances and decided that family pensions will only be paid for up to 10 years after the death of the main pension holder.

Interestingly, the government did not announce any change in the minimum wage, which currently stands at Rs37,000. Earlier, the federal government set the minimum wage, and provinces followed.

Differently-abled employees will get a higher monthly conveyance allowance, increased from Rs4,000 to Rs6,000.

Although the budget document showed a 6% salary increase for government employees, Finance Minister Muhammad Aurangzeb announced a 10% raise during his budget speech.

The minister said the government is also working to reduce salary differences between employees by proposing a 30% allowance to help close the pay gap.

Because of ongoing security challenges, a special relief allowance will be given to armed forces officers, soldiers, and junior commissioned officers (JCOs). This will be paid from the defense budget.

Regarding pension reforms, the finance minister said the government is making changes to lower the burden on the national budget. Some key reforms include: discouraging early retirement, linking pension increases to inflation (Consumer Price Index), limiting family pensions to 10 years after the pensioner’s death, stopping the payment of more than one pension to a single person, and allowing pensioners to choose either their pension or salary if re-employed after retirement.

The government also plans to tax pensioners under 70 who earn more than Rs10 million a year at 5%. Pensioners with low or medium income will not have to pay this tax.

Before the budget was presented, Prime Minister Shehbaz Sharif said that despite difficult times over the past year, the government managed to improve the country’s situation. He noted that the working class and salaried people made sacrifices and paid about Rs400 billion in taxes, and questioned how much the wealthy had contributed.