Public sector pensions in India – a primer

This post grew out of a discussion on Twitter

Here are the basics:

  • The pension paid out to an retirees of Government bodies is a fixed amount – to be paid until the retirees lifetime
  • Employees who cross 20 years of service are eligible for pension, at 50% of last drawn pay.
  • Voluntary retirees are paid out a certain lifetime pension based on last pay drawn + years of service
  • Additionally, there is the family pension benefit
  • Family pension is is typically paid out to the the unemployed spouse of an employee who dies in service, regardless of the cause of death, until lifetime of spouse. Family pension
  • After the death of a retiree, an unemployed spouse, who does not receive any pension, is eligible to receive a lifetime family pension.
  • The pension is calculated on the basis of last pay drawn + years of service
  • Pensions have also had a Dearness Allowance component added on to them, which is liable to upward adjustment based on future Pay commission recommendations
  • The pension is not a fixed amount to be paid monthly either. This pension amount is usually adjusted upward based on Pay Commission recommendations.
  • Also, with increased age of retirees, the Sixth Pay Commissions has recommended increasing pension upwards with advancing age.
  • Usually, upon adoption of Pay Commission recommendations, the payment is disbursed effective from the date of recommendation and not effective from date of adoption. Therefore, pensioners also receive a lump-sum arrears also.

The Fifth Pay Commission has recommended adoption of its recommendations by the State Governments also.

From the Sixth Pay commission onwards, various quasi-Government bodies, PSUs have had their unions negotiate for adoption of Pay Commission recommendations.

Besides the pension, Central Government retirees are entitled to avail of Central Government Health Scheme – a comprehensive scheme of reimbursement for healthcare expenses.

We can safely note that the various arms of the Government have together taken up responsibility for more than 10 million people, to be compensated until lifetime.

Having laid out the basic facts, I would argue that my primary problem with this arrangement is that the various parts of the Public Sector have taken on these long-lasting liabilities without adequate discussion of the means of funding this liability in a sustainable way.

The New Pension Scheme has been adopted widely by the public sector and created as a defined contribution scheme. However the Sixth Pay commission does not really take this fully into account. Its recommendations towards pensions are still geared towards a defined benefit structure.

One assumes that this dichotomy will be resolved, like everything else in this country, on a one-on-one negotiation basis.

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