52 Lakh pensioners to be benefitted by Seventh Central Pay Commission

Seventh central pay commission, the report of which has been submitted to the finance minister, is all set to benefit 52 lakh pensioners. This would be done under the much-in-news one-rank, one-pension (OROP) principle. Having lesser liabilities than other beneficiaries, these pensioners are more likely to spend the money they get than save it. This would increase the demand for consumer goods and services as well as for recreation and travel.

As per the proposal by the pay commission, past pensioners and current retirees would be at complete parity with each other, owing to which, the amount paid to both these sections would be comparable.

"The rate of growth is relatively higher for pensions because of the recommendation to adjust scales of pensioners, akin to OROP," ICRA senior economist Aditi Nayar told ET.

For serving employees, the pay increase is 16%, while pensioners would get 24% increase in benefits. However, the allowances given to serving employees would also see a boost, making the benefits equaling 23.6%.

However, if reports are to be believed, a pressure on fiscal deficit might induce some delay in the increase of allowances. If this happens, pensioners stand to benefit the most from the pay commission award, starting January 1, 2016.

For computing the pension benefits, there have been two methods proposed. The pensioner will get the higher of the two sums, based on parity with current retirees and the uniform 2.57 fitment allowed to everyone. This is the factor, as determined by the pay commission, by which the old number will be multiplied to arrive at the new sum for beneficiaries. Accordingly, for those who retire now, the minimum monthly pension is set to increase to Rs 9,000, which previously was Rs 3,500. On an estimate, a pensioner will on average get Rs 65,000 more a year now.

"Assuming that the revision is rolled out as scheduled and there are no lump sum arrears that need to be released, we expect the lower ticket sized consumer durable segment to receive a spending boost, from new as well as replacement demand," said Nayar. This obviously depends on the financial positions of the pensioners, including a house and other liabilities that they might not have to pay for, as opposed to the serving employees.

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