Starting mid-July 2025, the Government of Nepal will stop providing pension and gratuity benefits to newly appointed civil servants. Instead, it will implement a contribution-based social security system to address the growing pension burden on the state. The Ministry of Finance issued a circular on Friday to ministries, public institutions, and regulatory bodies, directing them to make arrangements for implementing the new system.
The decision is aimed at easing the ballooning fiscal pressure created by the traditional pension scheme, where state liabilities have soared to nearly Rs 100 billion annually. The government attributes a large part of this burden to the continuation of pension payments even after a retiree’s death—especially when spouses, such as widows, continue receiving lifelong monthly pensions.
Under the new system, 20 percent of the employee’s salary will be deducted monthly, and the government will contribute an additional 11 percent. This combined contribution will be deposited into a retirement fund, which can be invested to generate returns. Upon retirement, civil servants will receive their benefits either as monthly payments or a lump sum—depending on the modalities they select.
Finance Ministry Spokesperson Shyam Prasad Bhandari stated that this shift marks a structural reform in Nepal’s public retirement system. A senior ministry official also confirmed that the current provision of pensions for surviving spouses will be discontinued for those enrolled in the contribution-based system.
The circular clarifies that new appointees from fiscal year 2025/26 onward will fall under the purview of the Contribution-Based Social Security Act 2017 and the Retirement Fund Act 2018. It also warns that the government will not bear liabilities if institutions fail to implement the scheme.
The reform will apply not only to government ministries but also to other entities such as:
- Nepal Rastra Bank
- Nepal Insurance Authority
- Securities Board of Nepal
- All 45 public enterprises
- Statutory boards and committees
The ministry highlighted that many public institutions, especially those operating at a loss and heavily dependent on the government budget, have created long-term liabilities by failing to manage retirement benefits effectively. The new system is expected to:
- Reduce fiscal burden
- Promote financial sustainability
- Allow individual ownership of retirement funds
- Encourage transparency and accountability in public finances
The government argues that the reformed model could yield higher retirement returns than the traditional pension system due to its investment-based structure. However, transitioning to this system will also require a strong regulatory framework and efficient fund management to ensure future retirees receive promised benefits.
This move signifies a major policy shift in Nepal’s civil service benefits structure—likely to influence future discussions on the financial sustainability of the public sector.
