Tuesday, September 08, 2015

The Potential Can Of Worms Of Averaged Pensions In OROP

It is anybody's guess when an official implementation letter for OROP would be issued. Till it can be seen and its detailed provisions are known, it would really be impossible to assess how OROP would translate into reality.

In the last blog post, I had placed the methodology of calculating the average of pensions, for a certain rank with a certain number of years of service, as the most important concern of all. Now, with the other issue that had caught the public imagination, viz., the applicability of OROP to pre-mature retirees, receding into the background, it may be important to look at the averaging matter so as to be a little aware of the consequences any decision regarding the same could have.

The statement of 5th September, on the subject of averaging, carries just the sort of vague tones of feigned innocence that ESMs, with their hard earned experience of the devious manner in which phraseology can be deployed as a weapon of offence against them, might be justified in sitting up up and taking notice. If such a blatant attempt as introduction of that VRS issue can be made, in a statement to be read by no one less than Hon'ble RM, there could be some reasonable basis for concern on what else might be in store.

Not being one inclined to favor spreading paranoia, I would still urge a bit of caution. I would not like to subscribe to current speculations whether or not the highly publicized VRS matter was an overt feint intended, by some sections, to mask more covert measures for whittling away at the entitlements that should flow from OROP. The VRS matter could have been a simple last minute drafting glitch, but it would be erring on the side of safety to not take things at face value.

To quote the statement of 05 September 2015, "..Pension will be re-fixed for all pensioners retiring in the same rank and with the same length of service as the average of minimum and maximum pension in 2013..".

What does the "average of minimum and maximum pension in 2013" mean? Some of the questions raised would, of course, be the same as those mentioned in the previous blog-post. But I felt it best to keep this list of queries in one place here. A bit of repetition of the old along with newer aspects, as they emerge, may not hurt.

*Is it the maximum and minimum pension actually paid to a certain rank with a certain number of years in 2013? If so, will it also include pensions of those who retired before 01 January 2006 paid in 2013

*Is it notional max and min pension calculated on the pensionable emoluments of a certain rank with a certain number of years?

*If it is the notional pension, how will it be calculated? For instance, for a Lt Col with 20 years of service at the beginning of base year (January 2013 if it is calendar year or April 2013 if it is the financial year), will a calculation first be made to see what the pay of that Lt Col would have been in December 2005, i.e. at 13 years of service for the calendar year scenario and 13 years 03 months of service in the financial year scenario, in both of which he would have been in the Lt Col rank in Dec 2005. Then the up-gradation of VI CPC would have to be applied to see where the fixation would have been from 01 Jan 2006 and his pay on 01 Jan/01 Apr of 2013 arrived at after applying increments. Similarly, would the notional pension at the end of base year (December 2013 or March 2014) be then calculated and average pension calculated from the notional pensions at the beginning or end of base year?

*Would the simpler way of just taking the notional pay at 20 years of service from the pay-band for the Lt Col, of the previous example, be the solution? But that would assume the Officer started at the bottom of the pay-band and reached the pay as applicable to a Lt Col with 20 years of service. This, in most of the cases, won't be true due to intervention of the VI CPC implementation date of 01 Jan 2006.

*The calendar year vs financial year ambiguity is peculiar, to say the least. If it had been the financial year 2013_14 ending 31 March 2014, it would have made perfect sense to implement from April 2014, as was originally announced by the Government as, let us face it, Government is Government, regardless of which political party is in power. If, due to reasons of bureaucratic or political prestige, July 2014 is to be the date of implementation then should not the base period, rather than "base year", have been fixed as from July 2013 to June 2014?

*How will pension of an ESM with a combination of rank and a certain number of years of service, that no one retired with in base year, be worked out? For example, how would the pension of a Major with more than 20 years be calculated? There will be no notional or actual pay or pension data for 2013 as there will be no Officers retiring in the rank of Major in 2013 with service equal to or more than 20 years of service as all officers would have become Lt Col after 13 years of service. Similarly, there would be no Lt Col retirees in 2013 with more than 26 years of service. They would minimally have received time bound promotion of Col on completing 26 years of service. As a specific example, how would OROP pensions of, for instance, a Major retiree with 24 years of service or a Lt Col retiree with 28 years of service, who retired before 2006, be calculated?

*How will notional pension be calculated for retirees in ranks with a certain number of years of service that would place them at top of pay-bands of ranks they had retired in, as service required to reach top of current pay-band of the rank they had retired in years ago would probably correspond to up to 10 years less than the service they had put in? To, again, take the example of a pre December 2004 Lt Col retiree with 28 years of service, if his pension is not equated, as it should, with that of someone retiring in base year with equal service and promoted, on time-bound basis, to Col, then the top of scale for Lt Col pay-band would correspond to years of service less than what the Lt Col had put in. Would they then exercise some imagination to extend the pay-band for calculating his pension for the same Lt Col rank or cook up some imaginary "stagnation increment" formula rather than shifting him notionally to the pay-band of Colonel, which would be closer to reality of pensioners with same service and same rank retiring in base year?

*Even now, with the "minimum of pay in pay-band" principle, there is a gradation in pension tables with qualifying service. Some panel discussions referred to "mean of scale" and whether it should not be "top of scale" i.e. notional pensions based on figures of pay for these two points in the pay-band. That sounds a bit too much like a "rule of thumb" process. Would that not simply remove the "years of service" aspect of OROP from the equation? Would it, for example, equate the OROP pension of a retiree with 20 years of service to that of one with 30 years of service just because they were in the same rank, hence the same pay-band, hence the same mean, at retirement?

I would like to, again, stress here that, to my mind, this issue of calculating the "average" has even greater relevance than the matter of periodicity of OROP reviews. Even if discussions focus on bringing down the periodicity from five years to three or two, the matter of the exact manner of calculating pensions should receive the highest priority. It is a more critical component of implementation as subtle variations could hugely impact results.

While shrill protests, to the point of hoarseness, over "One Rank Five Pensions" are understandable, maybe a bit of application of mind to the "fixation methodology" is required without further delay for getting details transparently sorted out before a notification gets formalized from keyboards prone to "as on/with effect from" kind of anomalies.


  1. Valid point. Methodology must be announced for transparency

  2. Sir

    Average of Min and Max means that all the personnel who retired in calendar year 2003, their retiring pension becomes the DATUM

    a situation MAY arise that a particular rank/QF is NOT represented - then what

    this is likely to happen in senior ranks

    an alternate has to be found - probably extrapolation

    1. "..means that all the personnel who retired in calendar year 2003, their retiring pension becomes the DATUM.."

      Sir, With sub-sets of the Government involved, that have dragged issues through court after court on little sentences like "As on" instead of "with effect from", it would be extremely rash to jump to any conclusions based on one's own interpretations. That is the point of the whole blog post.

      The highlighted sentence, 'What does the "average of minimum and maximum pension in 2013" mean?' takes on a life of its own, given the experiences.