Wednesday, September 16, 2015

Table Time, Again!

A recent statement in news media by a representative of IESM threw some light on thinking on the ESM associations' and, probably the Government's approach to calculating OROP pensions for older retirees.

The rep spoke of asking for fixation at top of pay band rather than based on the average of the pay band. This makes me feel that the old manner of pension fixation across CPCs, through fitment tables and then fixing minima on older pensions, still governs reasoning on OROP. To my mind a radically new approach is required as OROP is a totally different paradigm.

The statement of IESM rep gives rise to several questions:

*If the OROP pension is to be based on the average of pensions for a rank in the base year, which in turn, as per inference drawn from the statement, is to be calculated on the average of pay (for that specific rank) in the pay band, then how would the element of years of service be taken into account? Let us not forget, post 2006, there is no pro-rata reduction in pension. If we calculate on the basis of the average of  pay in pay band for a particular rank, the pension will be the same regardless of number of years of service (from 20 to 33). Also, as the pay band remains constant, the average of pay in the pay-band remains constant. So how is it expected to increase from year to year for which an annual review is being sought?

*The same logic would apply even if top of the pay in pay band was used. How would variation in number of years of service  and variation from year to year be accommodated in such a pay-band based pension calculation?

*Are we to infer that top of the pay-band would have been reached in the base-year for someone with a certain number of years of service? This is another way of asking the same old question as to what is the average of pensions? Average of pensions actually paid in base year or of pensions based on pay in pay band? Or are they going to see the highest pay and the lowest pay drawn by a certain rank with a certain number of years of service, even if not retiring in the base year, and then calculate the average pension for that "rank_years of service" combination?

Now, regardless of the way they decide to calculate the OROP pension, there are rough indications available how it would impact pensions after OROP is implemented. Firstly, let us go back to the GOI letter of 2008 that spelt out how pensions would first be consolidated. Would that be the case here? Considering it is the pension in the base year that is to be a benchmark for earlier pensions, there is a need to skip the consolidation bit. Let us not forget it is not a transition from one CPC to another. The only parallel could be the application of the minima to older pensions. Here the ESM rep's statement and the Govt statement appear to suggest that instead of the minimum of pay in payband specified in 2008, as embedded below, it will be the "average" pension in base year based on average of pay in pay band.

Min of Pay In Pay Band Stipulation : GOI Letter Of 2008


 

PCDA circular 500 described this manner of fixing the minimum pension as modified parity as shown here :


 

Whether or not that will be the manner in which OROP pensions will be calculated remains to be seen. But it is not difficult to generate figures based on pay in pay band considerations and arrive at different, purely hypothetical, figures for OROP for some relative comparisons as shown in the following table :


 


Even with these hypothetical figures, it is easy to see how the enhancement in pensions could vary from one manner of fixation to another. The actual amounts may differ but the range of variation in percentages could be in the same region.


 
The above, purely speculative, exercise can only serve to indicate what other surprises may be in store. It may not be out of place for the Government and ESM Associations to bring everyone on board by sharing the precise modalities that the OROP implementation letter is to be based on. Perhaps inviting feedback in a transparent manner could resolve issues faster than keeping the cards close to their chests.

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