In implemented, the central governments proposal to hike the age of retirement of its employees from 60 to 62 will defer by two years its pension liabilities of around Rs 14,749 crore, according to the Invest India Economic Foundation (IIEF).
At the same time, the salary burden on account of the 1,70,000 employees whose retirement will be deferred immediately by two years will be to the tune of Rs 9,784 crore for the two-year period.
This includes increments and indexation for future dearness allowance. The calculation, based on data from Invest India Market Solutions (the consulting practice of the IIEF), assumes an average monthly salary of Rs 21,800 under the forthcoming Sixth Pay Commission.
The central government had estimated 3,321,210 employees (excluding defence personnel) on its rolls in 2007, with the number projected to go up marginally to 3,329,682 in 2008.
According to the Budget estimate for the current fiscal, the total outgo on pay, allowances and travel expenses is Rs 46,379 crore, around 11.60 per cent higher than in the last fiscal.
The hike in retirement age will be implemented for defence forces personnel. State governments would also most likely follow suit.
Based on the Invest India Incomes and Savings Survey, 2007, it is estimated that around 5.3 per cent central government employees (170,000) are likely to retire over the next two years.
Kavim Bhatnagar, who is on deputation from the Madhya Pradesh government with the IIEF, says, With the raising of the age by two years immediately and the increase in the level of salaries and pensions due to the forthcoming award of the Sixth Pay Commission, the central government will be able to defer the pension payout for this group and pay them enhanced salaries.
In making the calculations, he has assumed that the recommendations of the Sixth Pay Commission for central government employees will be implemented in fiscal 2007-08.
The savings for the central exchequer shall be on account of deferred gratuity, commutation, first pension and leave encashment on retirement for the 1,70,000 employees.
Since these payments are paid out of the Consolidated Fund of India, the burden shall be reflected in the Budget, while another payment for this category General Provident Fund and Family Benefit Fund of the Group Insurance Scheme is paid out of the Public Account.
The proposal to increase the retirement age is being given final touches in the Ministry of Personnel, prior to being brought to the Cabinet for approval.