Referring to the query of Mr A V Subbaraman,
in the Chat-n-Chat column, to my understanding,
there is not much
difference between OROP
which is
applied in case of military personnel
and upgradation of pension which is applied
in case of civilian retirees like
Central Government
employees.
One Rank
One Pension, or OROP, implies payment of a uniform pension to personnel
retiring in the same rank with the same length of service, irrespective of
their date of retirement.
The Defence
Ministry still seems to be stuck up with
the correct definition of OROP factoring length of service taking into
consideration that military personnel retire latest at age 35 or 37 compared to
the civilian employees of the Central Government who normally retire at age 60.
As
far as Central Government employees are
concerned, upgradation of pension is
effected with implementation of Pay
Commission recommendations once in 10
years whereby the pension is upgraded by
revising the Basic Pension at 50 % of the minimum of the revised Pay Band plus the Grade Pay corresponding to the pre-revised
scale.
The upgradation as we, LIC Pensioners( other than the Delhi HC
petitioners) are demanding is upward
revision of pension on substituted scales of pay as per the judgments of Jaipur
Bench of Rajasthan HC & Punjab &
Haryana HC which are under appeal by LIC and which have been refused to be
stayed by the Supreme Court..
For the information of the visitors of the blog, I reproduce two
articles culled out from the web.
Greetings.
C H Mahadevan
---------------------------------------------------------------------------------------------------------------------
Thursday, February 05,
2015
Understanding
one-rank-one-pension
This is a post that
should have been written a long time ago. It seems impossible to reverse
one-rank-one-pension in India now, and it seems hopeless to fix the military
pension. However, it's worth understanding what the issues are, and the mess
that we've landed in.
Nominal annuities in a zero growth environment
Let's start with a country with no GDP growth. So a worker earns some income all his life. We want him to tuck some money away every year into a pension account that will buy an annuity at the age of retirement. He builds up this pension wealth, and at age 60, he buys an annuity. It's common to target a "50% benefit rate", i.e. the magnitude of the annuity should be half his last wage.
To fix intuition, let's assume the number A is the price of an annuity which yields a flow of income of Rs.1 per month. In this case, the pension wealth to get to half the last wage is Aw/2.
This is the challenge of the ordinary pensions discussion. If you want an unfunded, i.e. a `defined benefit' pension, then you want the taxpayer to pay Aw/2 for each person. There is no other difference; the basic story is the same.
In India today, A is roughly Rs.133. That is, if you buy an annuity at age 60 which pays Rs.1 per month until death, the price is Rs.133.
So far, we have asked the annuity provider a simple question: We have said: I want a fixed cash flow of Rs.1 per month until I die. What would you charge for this? The annuity market says: I will charge A for this contract. This is the lowest price of an annuity; this is a simple unindexed nominal annuity.
Now we can modify the terms of this annuity in many ways.
Real annuities in a zero growth environment
You could say: Instead of giving me a nominal Rs.1 per month, give me an inflation indexed Rs.1 per month. This is an inflation indexed annuity. This will of course cost a lot more than A. To produce a nominal annuity, the annuity provider invests in nominal bonds which produce a stream of cash. But to produce a real annuity, the annuity provider has to invest in inflation-indexed bonds, which yield a lower stream of cash. Hence, it needs much more than A to produce an inflation indexed stream of Rs.1 per month. Suppose the price is B, and we know B >> A.
A government that promises an unfunded inflation-indexed annuity is placing an expense on the tax payer of Bw/2.
The problem of GDP growth
Into this environment, let's inject high GDP growth. Let's go to the higher side by assuming per capita GDP growth of 7%, which means that per capita GDP doubles every decade.
When a person is 60, he was at half the wage of persons who are 59. But when he reaches 70, his pension has stood still, but the persons who are at age 59 have (roughly) got a doubling of their wage. The pensioner has lost ground compared with the worker.
That pensioners lose ground when compared with workers is a fact of life of all pension systems. In the West, where pensions were invented, this was not a big deal, as they have had a slow growth environment. But when there is high GDP growth, this can yield glaring gaps. A pensioner who is at the 90th percentile of the Indian income distribution at age 60 will endup at perhaps the 70th percentile of the Indian income distribution at age 70.
This is just a fact of life and you can't do anything about it. Anyone who builds up wealth in India over the working years 1980 to 2020 will seem prosperous in relative terms in 2021 but will seem less prosperous in relative terms in 2031 and in 2041. That's the inexorable logic of high GDP growth.
Suppose we go to the annuity provider and say: Sell me an annuity which is not just inflation indexed, but wage indexed. The payment per month will go up to reflect the average wage growth of the economy. This is a pension which will keep up with the Joneses.
In my knowledge, there is no private insurance company which will produce such an annuity. It's a very expensive annuity to produce. Let's use the symbol C for the price of this annuity. C >> B >> A.
A government that promises someone a wage indexed pension is asking the taxpayer to put up Cw/2 which is much bigger than Bw/2 or Aw/2.
That's one-rank-one-pension
This is the costliest pension imaginable. The Indian government seems to be on the trajectory of offering this for all military personnel. It is a dramatic escalation of the implicit pension debt for the government on account of military personnel.
Once this entitlement is in place, it will be hard for the government to go through with the NPS reform, where the second stage was supposed to be integrating uniformed personnel into the NPS.
It is a disappointment that we did not have adequate thinking on these issues in time. The delays and sloppiness of implementing the NPS have been extremely costly for India.
(FROM
AJAY SHAH’s BLOG)
The scheme implies payment of a uniform pension to personnel retiring in the same rank with the same length of service, irrespective of their date of retirement.
Shivani Sharma Dasmahapatra · May 26, 2015 · 12:30 pm
There’s talk once again of the One Rank One Pension
scheme for the armed forces in the country’s news pages. Once again, political
parties are wrangling over it as more than 2.5 million veterans who have been
waiting for the scheme for three decades watch from the sidelines.
One Rank One Pension, or OROP, implies payment of a uniform pension to
personnel retiring in the same rank with the same length of service,
irrespective of their date of retirement. At present, pensioners who retired
before 2006 draw a lower pension than their counterparts and juniors who
retired afterwards.
The disparity between past and present pensioners has grown with every successive
Pay Commission. It became most visible after the implementation of the Sixth
Pay Commission’s recommendations in 2000s. A sepoy who retired before 1996 gets
82% less pension than a sepoy who retired after 2006. Among officers, a major
who retired pre-1996 gets 53% less pension than a major who retired post-2006.
Predictably, this situation has left the ex-servicemen community extremely
unhappy.
Why military pensions are different
Until 1973, officers drew 50% of their last drawn salary as pension every month and jawans/junior commissioned officers drew 70%. But this changed after the Third Pay Commission’s suggestions came in that year: military pensions were reduced and aligned with civilian pensions. Many of those who resist One Rank One Pension argue that, given the alignment in military and civilian pensions, the scheme for the military may prompt similar calls from others. Their argument is, however, misplaced. Notwithstanding the pensions, the military is distinct from other government services. To start with, armed forces personnel do not get to serve as long as those in the civil services. While the retirement age for civil servants is 60 years, 85% soldiers are compulsorily retired between 35 and 37 years of age and another 12% to 13% soldiers between 40 and 54 years. Further, civil servants are protected under Section 47 of the Disability Act and cannot be discharged by the government on account of disability until they reach the retirement age. This section doesn’t apply to the defence forces and they can be discharged anytime on account of disability. The Legal Position
In 1983, the Supreme Court had ruled in the case of DS Nakra and others vs Union of India that “pension is not a bounty nor a matter of grace depending upon the sweet will of the employer. It is not an ex-gratia payment, but a payment for past services rendered." The apex court spoke again on this issue in the case of Union of India & Maj Gen SPS Vains & Others in 2009. It ruled then that no defence personnel senior in rank could get a lower pension than his junior irrespective of the date of retirement, and that similarly placed officers of the same rank should be given the same pension irrespective of the date of retirement. On February 17 this year, the court, while hearing a contempt petition filed by Maj Gen (Retd) SPS Vains, directed the Centre to implement its six-year-old verdict and follow the OROP principle for retired armed forces personnel. It reminded the Bharatiya Janata Party-led government that the party had promised to do so in the run-up to last year’s Lok Sabha elections. The bench, comprising Justices TS Thakur and AK Goel, warned the government of contempt if it failed to abide by the order within three months. “We make it clear that no further time will be granted for the purpose of [the] implementation of the judgement,” it told additional solicitor general Pinky Anand. Long overdue
The OROP scheme has been on an endless journey for the past three decades. Successive governments have ignored it or pushed it to the backburner, suggesting that armed forces veterans are secondary to political expediency and politics. Last year, Prime Minister Narendra Modi had offered new hope when he said his government would implement it “as soon as possible”. While the euphoria generated by Modi’s statements pre- and post-election has died down, the military veterans are still cautious. They have heard statements before declaring that OROP has been “cleared”, “finalised”, “signed”. They now want a government order that confirms the scheme, putting an end to the pension disparity that has hurt so many veterans across ranks. The decades-long governmental apathy towards ex-servicemen’s demands has put a financial squeeze on veterans who retired years ago and now can’t meet the rising costs of living with their low pensions. It has also projected the armed forces as an unattractive career option for the youth. Lured by the far more lucrative salaries in the corporate sector, hundreds of officers opt out of the services for better financial prospects. This has led to an acute shortage of manpower in the armed forces. While the armed forces are called upon to help in every major emergency – be it the Yemen evacuations, the Uttarakhand flood rescue operation, or Operation Maitri in earthquake-hit Nepal – there is nobody heeding the call when these men are in need. The Indian government must fulfil its much-repeated promise if it wants to keep the country’s armed forces motivated.
Until 1973, officers drew 50% of their last drawn salary as pension every month and jawans/junior commissioned officers drew 70%. But this changed after the Third Pay Commission’s suggestions came in that year: military pensions were reduced and aligned with civilian pensions. Many of those who resist One Rank One Pension argue that, given the alignment in military and civilian pensions, the scheme for the military may prompt similar calls from others. Their argument is, however, misplaced. Notwithstanding the pensions, the military is distinct from other government services. To start with, armed forces personnel do not get to serve as long as those in the civil services. While the retirement age for civil servants is 60 years, 85% soldiers are compulsorily retired between 35 and 37 years of age and another 12% to 13% soldiers between 40 and 54 years. Further, civil servants are protected under Section 47 of the Disability Act and cannot be discharged by the government on account of disability until they reach the retirement age. This section doesn’t apply to the defence forces and they can be discharged anytime on account of disability. The Legal Position
In 1983, the Supreme Court had ruled in the case of DS Nakra and others vs Union of India that “pension is not a bounty nor a matter of grace depending upon the sweet will of the employer. It is not an ex-gratia payment, but a payment for past services rendered." The apex court spoke again on this issue in the case of Union of India & Maj Gen SPS Vains & Others in 2009. It ruled then that no defence personnel senior in rank could get a lower pension than his junior irrespective of the date of retirement, and that similarly placed officers of the same rank should be given the same pension irrespective of the date of retirement. On February 17 this year, the court, while hearing a contempt petition filed by Maj Gen (Retd) SPS Vains, directed the Centre to implement its six-year-old verdict and follow the OROP principle for retired armed forces personnel. It reminded the Bharatiya Janata Party-led government that the party had promised to do so in the run-up to last year’s Lok Sabha elections. The bench, comprising Justices TS Thakur and AK Goel, warned the government of contempt if it failed to abide by the order within three months. “We make it clear that no further time will be granted for the purpose of [the] implementation of the judgement,” it told additional solicitor general Pinky Anand. Long overdue
The OROP scheme has been on an endless journey for the past three decades. Successive governments have ignored it or pushed it to the backburner, suggesting that armed forces veterans are secondary to political expediency and politics. Last year, Prime Minister Narendra Modi had offered new hope when he said his government would implement it “as soon as possible”. While the euphoria generated by Modi’s statements pre- and post-election has died down, the military veterans are still cautious. They have heard statements before declaring that OROP has been “cleared”, “finalised”, “signed”. They now want a government order that confirms the scheme, putting an end to the pension disparity that has hurt so many veterans across ranks. The decades-long governmental apathy towards ex-servicemen’s demands has put a financial squeeze on veterans who retired years ago and now can’t meet the rising costs of living with their low pensions. It has also projected the armed forces as an unattractive career option for the youth. Lured by the far more lucrative salaries in the corporate sector, hundreds of officers opt out of the services for better financial prospects. This has led to an acute shortage of manpower in the armed forces. While the armed forces are called upon to help in every major emergency – be it the Yemen evacuations, the Uttarakhand flood rescue operation, or Operation Maitri in earthquake-hit Nepal – there is nobody heeding the call when these men are in need. The Indian government must fulfil its much-repeated promise if it wants to keep the country’s armed forces motivated.
(From Scroll.in)