The Government of Pakistan has introduced a new tax rule on high pension incomes, effective July 1, 2025. This policy introduces a 5% tax rate on pensions exceeding PKR 10 million per year, but only for individuals under the age of 70. The aim is to create a more progressive tax system by ensuring that wealthier retirees contribute their fair share.

Let’s break down what this means for pensioners across the country.

What’s New in the 2025 Pension Tax Law?

This updated policy introduces differential taxation based on two factors: pension amount and the age of the pensioner.

Pension Income	Age of Pensioner	Tax Rate
Up to PKR 10 million	Any age	0% (fully exempt)
Above PKR 10 million	Over 70 years	0% (still fully exempt)
Above PKR 10 million	Under 70 years	5% on excess amount

This means most pensioners will not be affected. Only younger, high-income retirees will need to pay tax — and only on the amount above the PKR 10 million limit.

Example: How Will the Tax Be Calculated?

Suppose a 65-year-old retiree receives PKR 13 million in pension for the year:

• The first PKR 10 million is tax-free.
• The remaining PKR 3 million will be taxed at 5%.
• Tax payable = PKR 150,000

This ensures only the excess amount is taxed, not the entire pension.

Why Was This Change Introduced?

The government is targeting fiscal fairness. The reform focuses on those receiving large pensions while still protecting:

• Middle-class pensioners
• Senior citizens over 70
• Retirees earning below PKR 10 million annually

This light 5% tax only applies to the wealthy and younger retirees — ensuring that the burden does not fall on the elderly or lower-income segments.

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Conclusion

This new tax reform is a strategic move to balance economic contribution. If you’re under 70 and expecting a high pension, you may now need to factor in this modest tax. For the rest — especially elderly retirees — the exemption remains in place, ensuring financial comfort in the later years.

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