"Pension in 8th Pay Commission: How Much Hike Pensioners Can Expect, Will There Be a Change in UPS?"
"Pension in 8th Pay Commission: How Much Hike Pensioners Can Expect, Will There Be a Change in UPS?"
Pension Under 8th Pay Commission:
Union Minister Ashwini Vaishnaw announced on January 16, 2025, the formation of the 8th Pay Commission, which is set to come into force on January 1, 2026. Read on to learn how much of an increase in pension central government employees can expect.
The Union Government has announced the formation of the 8th Pay Commission, which will result in the revision of not only the salaries of all central government employees, including those in the armed forces, but also the pensions for pensioners.
Union Minister Ashwini Vaishnaw announced on January 16, 2025, that the 8th Pay Commission will likely be formed soon, with its recommendations set to come into force on January 1, 2026.
Currently, all central government employees receive their salaries and pensions based on the recommendations of the 7th Pay Commission, which was implemented from January 1, 2016.
Ritika Nayyar, Partner at Singhania & Co, says, "Though predicting the hike is practically not feasible, based on the average pension hike percentages from previous pay commissions, the 8th Pay Commission may provide an average pension hike in the range of 20% to 30%. However, the actual percentage increase will depend on various factors considered by the commission, including economic conditions and budgetary constraints."
According to Nihal Bhardwaj, Senior Associate at SKV Law Offices,"Pensions under the 8th Pay Commission are likely to increase in line with the salary revisions, with an average hike of 25-30% expected. Past commissions, such as the 6th and 7th, provided pension increases matching salary hikes, with the latter implementing a fitment factor of 2.57, raising pensions by 23-25%. Enhancements for retirees may include additional allowances for senior pensioners and higher dearness relief (DR) to offset inflation. Such measures are crucial to ensure that pensions remain sufficient to meet rising costs, while aligning with employee expectations for equitable post-retirement benefits."
The fitment factor is a multiplier used to calculate the revised basic pay for central government employees and pensioners. The revision for each pensioner will depend on their current basic pension and the category they belong to. For example, if the fitment factor is 2.5 and the basic pension is Rs 30,000, the revised basic pension would increase to Rs 75,000.
At the beginning of the revised basic pension, the dearness relief is reduced to zero. However, pensioners may continue to receive other allowances as per the recommendations of the latest pay commission. Over time, pensioners will start receiving periodic dearness relief again, which will result in regular pension hikes to account for inflation.
Chatterjee says the announcement of the 8th Pay Commission may lead to changes in the structure and government contribution towards the NPS, OPS, and UPS schemes. "It is too early to comment on percentages at this stage," he adds.
Bhardwaj says, "There is a possibility of reforms in pension structures such as the National Pension System (NPS), Old Pension Scheme (OPS), and Uniform Pension Scheme (UPS) alongside the 8th Pay Commission. Employees and unions have consistently demanded a return to OPS or improvements in NPS, citing the need for secure post-retirement benefits. Likely changes could include increased government contributions to NPS (beyond the current 14%) or guaranteed returns to reduce market risks. The government may also explore a hybrid model, merging the stability of OPS with the flexibility of NPS, ensuring long-term sustainability."
Dearness Relief Exceeds 50% Under the 7th Pay Commission, Indicating a Need for Revision
On October 16, 2024, the central government approved the latest hike in Dearness Allowance (DA) for Central Government employees and Dearness Relief (DR) for pensioners, effective from July 1, 2024. This represents a 3% increase over the existing rate of 50% of Basic Pay/Pension, aimed at compensating for the price rise.
“This will benefit about 49.18 lakh central government employees and 64.89 lakh pensioners,” according to a press release.
It has been a long-standing practice to revise the basic salary structure of central government employees and pensioners every 10 years with the formation of a new pay commission. Typically, the dearness relief exceeds 50% during this 10-year gap, further reinforcing the need for a revision of the basic pay.
8th Pay Commission Announced: How Much Salary Hike Central Government Employees Can Expect, and How to Calculate It
What Could Be the Overall Hike for Employees and Pensioners?
While the basic salary or pension may see a substantial increase following the recommendations of the new pay commission, the overall hike may not be as significant initially. However, as the salary base is raised significantly, any future dearness relief will result in a greater increase in overall salary over time.
What Were the Recommendations of the 7th Pay Commission?
Under the 7th Pay Commission, the minimum pension is currently Rs 9,000, up from Rs 3,500 in the 6th Pay Commission.
The 7th Pay Commission recommended a revised pension formulation for civil employees, including CAPF personnel, as well as for Defence personnel who retired before January 1, 2016. "This formulation will bring about parity between past pensioners and current retirees for the same length of service in the pay scale at the time of retirement," according to a press release by PIB.
The overall impact of the 7th Pay Commission recommendations, in percentage terms, showed a 23.55% increase in pay & allowances and pensions over the 'Business As Usual' scenario. Within this:
The increase in pay was 16%.
The increase in allowances was 63%.
The increase in pension was 24%.
How the Final Basic Pay Will Be Decided for Old Pensioners
Following the methodology adopted by the last Pay Commission, the 8th Pay Commission may also use a multi-layered approach to address the varying needs of employees and pensioners in different categories.
Announcing the implementation process of the 7th Pay Commission, PIB stated, “The past pensioners shall first be fixed in the Pay Matrix being recommended by the Commission based on the Pay Band and Grade Pay at which they retired, at the minimum of the corresponding level in the pay matrix. This amount shall then be raised to arrive at the notional pay of retirees by adding the number of increments they earned in that level while in service at the rate of 3 percent. In the case of defense forces personnel, this amount will include Military Service Pay as admissible. Fifty percent of the total amount so arrived at shall be the new pension."
Additionally, an alternative calculation will be carried out, which will be a multiple of 2.57 times the current basic pension. The pensioner will receive the higher of the two amounts.
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