BCPC Final Memorandum to 7th CPC
MEMORANDUM ON PENSION AND OTHER RETIREMENT BENEFITS
CHAPTER – I
The Government of India, Ministry of Finance, Department of Expenditure, Resolution No.1/1/2013-EIII(A) dated 28th February, 2014 in its Para 2(f) has included the following terms of reference of the 7th Central Pay Commission:
“(f) To examine the principles which should govern the structure of Pension and other retirement benefits, including revision of pension in the case of employees who were retired prior to the date of these recommendations, keeping in view that the retirement benefits of all Central Government employees appointed on and after 01.01.2004 are covered by the New Pension Scheme (NPS).”
1.2 The principles that should govern the structure of pension etc have to be evolved taking into account the relevant constitutional provisions as well as judicial pronouncements by the Supreme Court of India in this regard.
1.3 Article 366(17) of the Constitution of the Country defines pension as under:
“ Pension: Pension means a pension whether contributory or not, of any kind whatsoever payable to or in respect of any person and includes retired pay so payable; a gratuity so payable and any sum or sums so payable by way of the return, with or without interest thereon or any other addition thereto, of subscription to a Provident Fund.” From this what is to be inferred is that the gratuity as well as commutation are also part of the pension as a whole. These are also to be treated as pensionery benefits.
1.4 The IV CPC went into the conceptual question of pension in detail. Some of the observations contained in their report are relevant in understanding the purport in the background in which the Central Government employees are placed today. This is reproduced below:-
“Para 2.13: Part II: The concept of “pension” however old in its origin, had the latent and real desire to provide for an eventuality – known and unknown. The known eventuality was old age and probable reduction in earning power, while the unknown eventuality was disability by disease or accident or death. Its real purpose was security, Even though the beginning was oblique, indiscernible and faint, but the germ of an effort to provide security ran through the provision and it is natural that it should have grown and flowered with the development of human understanding and desire to look after and provide for those who deserved it for man has constantly been seeking means by which to enhance his economic security. But the extension of the pension provision from military service to civilian public employment, resulted largely from consideration for the employees and the pressure of their organisations. Some benevolent employer goes to the extent of regarding pensions as an absolutely indispensable complement of wages – a terminal benefit. That, however, is apart from another aspect bearing on pension – the social aspect. The demographic structure of the population is changing because of the greater expectation of life. Thus, those who are now in middle age are going to be nearly twice as big an economic burden to their children as their parents are to them. The problem in such cases, has been tackled as a social obligation, including social insurance for citizens generally.”
“Para 2.17: In the very nature of things, every employee, who lives long enough, reaches a stage of diminished outturn of work or what may generally be called nonproductive years. That may, speaking generally again, be set to be the responsibility
of his employer for whom he has spent the best years of his life. In a welfare state that may also be set to be the responsibility of the Government (where he is not in his employment) and, in more modern society, it may also be set to be the responsibility of the individual. So all three namely, the employer, the Government and the employee or one or the other of them, may be expected to contribute towards the pension according to the social or administrative set up of the country or society where the individual undertakes the service but the one common feature and object of pension is to provide for the old age of the employee for the simple reason that time has eroded his capacity to earn and he is unable to provide for himself. In a country like ours, where we have solemnly resolved to constitute it into a “Socialist” Republic and to secure to us all social and economic justice (Preamble), it behoves the Government to take care of its employees by providing terminal benefit like retirement pension when they become entitled to them. We may refer to the directive principle of the State Policy enshrined in Article 39 (a) of the Constitution that the State shall in particular direct its policy towards securing that the citizens have the justify to an “adequate means of livelihood” ….. If, such a citizen is an employee of the State, is it out of ordinary, and not as of a Constitutional directive, that the State should appreciate its duty to provide for him by means of a pension and/or other terminal benefits? (emphasis added) …. The concept of pension, therefore carries within it the germ of certainty, periodicity, and “adequacy”. ……. Ours is a Socialist State and the fundamental aim of Social security is to give individuals and families the confidence that their level of living and quality of life will not, in so far as, be greatly eroded by any social or economic eventuality, including the age of superannuation or oncoming disability”
1.5 The concept of pension has been explained more precisely in the Encyclopaedia of Social Sciences, Vol.11 as under:
“administrators and civic leaders interested in the improvement of Government services formulated the idea of pension as an efficiency device necessary for the orderly and humane elimination of superannuated and disabled employees no longer able to function efficiently for the proper operation of the system of promotions, for the attraction of better type of employees and for the improvement of working morale”
1.6 On the doctrinal approach the Encyclopaedia further states that:
“ A doctrine recently advanced and more far reaching in its implications regard the Public Service as the logical pioneer in the meeting of the old age problem as it affects wage earner in modern society. This doctrine considers a pension as a compensation paid to the employee for the gradual destruction of his wage earning capacity in the course of his work. Retirement being a proper charge against the employees, entire period of active service, the employer should make contribution towards the employees eventual retirement during each year of service of the employee, in a manner similar to that in which he annually sets aside a reserve against depreciation and obsolescence of his plant and machinery. Pensions, according to this doctrine, are an absolutely indispensable compliment of wages.”
1.7 In para 2.20 the IV Pay Commission has observed:
“but even though the Government service pension scheme in our country is non-contributory, it has been contended again by way of doctrinal approach, that this is not really so and that some allowance is made for the missing contribution while determining the salaries”
1.8 The Supreme Court in their Landmark Judgment (which has been approvingly quoted by the 5th CPC in D.S.Nakara and others Vs Union of India (AIR 1983 SC 130) held that Pension is neither a bounty nor a matter of grace depending upon the sweet will of the employer. It is not an ex-gratia payment but payment for past services rendered. It is a social welfare measure rendering socio economic justice to those who in the hey-days of their life ceaselessly toiled for their employer on an assurance that in their old age they would not be left in lurch. The 5th CPC paying due respect to the above observation of the Honourable Apex Court in Para 127.6 of its report has stated that the pension is the statutory, inalienable, legally enforceable justify of employees which has been earned by the sweat of their brow.
As such the pension should be fixed, revised, modified and changed in ways not entirely dissimilar to the salaries granted to serving employees.
1.9 While examining the goals that a pension scheme should seek to sub-serve, the Honourable Apex Court held that “a pension scheme consistent with available resources must provide that the pensioner would be able to live:
(i) free from want, with decency, independence and self respect, and
(ii) at a standard equivalent at the pre retirement level”
The Court observed that we owe it to the Pensioners that they live, not merely exist.
1.10 From the above observation of the Supreme Court it is clear that pension is payable by the employer i.e., the Central Government to its retired employees which is their statutory and legally enforceable justify from which they cannot be deprived. That the amount of pension must be enough to enable a pensioner to live free from want with decency, independence, and self-respect and at a standard equivalent at the pre-retirement level.
1.11 Keeping the above observations and principles and judicial pronouncements in view, we submit below our suggestions for restructuring the existing pensionery scheme in appropriate chapters. We have made our submissions only in respect of issues where we want Commission to consider improvements in the existing provisions.