Raising Defence Pension – Issues, Challenges, Way Ahead
Pension is an integral part of the armed forces’ terms of engagement. This year, for the first time in the history of independent India, the government will spend more on paying pensions than on purchasing weapons and weapon systems. Thus, concerns have arisen that the pension budget is unsustainable and would hinder India’s defence capabilities, especially during these trying times. Reforms must be ensured as soon as possible to address this issue and also to safeguard the needs of the ex-servicemen.
Why the defence pension in India needs a relook?
- With around 1.4 million personnel on active duty, India has the second-largest standing defence force in the world after China.
- As all personnel are discharged or retired from service with a mandatory pension, there are currently more than 32 lakh defence pensioners and approximately 55,000 pensioners are added every year.
- Considering that the armed forces personnel retire at a relatively younger age, the pension liability lasts for over a long period, putting pressure on the government’s budget.
- Defence ministry received 4,71,378 crores under the Union Budget 2020-21.
- This is an 8.5% increase from the last year’s budget estimates.
- Majority of this increase has been allocated to pensions, salaries and allowances.
- In fact, 28% of the ministry’s total budget has gone towards the payment of pensions and another 28.9% have been allocated for salaries and allowances.
- The pension budget has increased more than 10 times between 2005-06 and 2020-21 due to the armed forces’ unique terms of engagement and successive improvements made in the pension entitlements.
- The defence budget has grown at an annual average rate of 9%.
- This rate of growth is far faster than the pace of increase in the overall budget and the capital outlay.
- This has increased the share of pensions in the defence ministry’s budget, indirectly affecting the capital outlay of the defence services.
- Defence expenditure constitutes 15.5% of the central government’s budget and 2.1% of India’s estimated GDP for 2020-21.
- Considering these aspects, there is a need to explore ways to contain defence pension so as to free more resources for modernisation and other aspects of the Indian defence.
Will defence pension continue to grow in the coming years?
The defence pension will keep on increasing because of the following reasons:
- The 1980 SC judgement in DS Nakra & others vs. Union of India stated that none of the past pensioners could be left out from the purview of any improvements the government makes in the pension structure of its current employees.
- This has led to the revision of all past pensions by the application of ‘liberalised pension formula’ that was earlier introduced for those retiring on or after 31st March 1979.
Growth of defence civilian pensions:
- While there will be a gradual reduction in the number of civilian defence pensioners (covered under Defined Pension Scheme or DPS) over the next 2 decades, it will be partly offset by the new addition from the current serving defence civilian employees, whose current held strength is nearly 4,000.
- Even if the currently held strength does not increase further, and 40-50% of the serving lot are still covered under the DPS, nearly 1,60,000 to 2,00,000 will gradually but eventually join the pensioner pool till around 2035.
- Thus, the defence civilian pensions will continue to grow for the next two decades.
- All the present defence civilian employees, who are covered under the DPS, will be eventually be replaced by new recruits under the National Pension Scheme, a defined contributory scheme.
- The government’s contribution to the NPS for the civilian recruits, which requires lesser spending than that of DPS, will nonetheless add to the pension budget.
OROP scheme and CPC recommendations
- The One Rank One Pension (OROP) scheme and the Central Pay Commission recommendations have provided a periodic spurt in the pension budget, especially that of the defence personnel.
- The OROP, which was introduced in November 2015, involves the payment of uniform pension to the Armed Forces Personnel retiring in the same rank with the same length of service, irrespective of their date of retirement.
- Under the OROP scheme, any future enhancement in the rates of pension will be automatically passed on to the past pensioners.
- The equalisation of pensions happens every five years. The first equalisation was carried out with effect from July 1, 2014.
- However, the next equalisation due on 1st July 2019 was not carried out because of the complications in implementation. It is currently examined by a committee constituted by the defence ministry in June 2019.
- While the 6th CPC implementation has doubled the pension budget in just 2 years, the OROP and 7th CPC led to an increase of 46% in pension expenditure in just one year.
Ever-increasing defence pensioners:
- The defence pension will continue to grow because of the higher life expectancy of the present and future pensioners.
- The high life expectancy would lead to fewer pensioners moving out of the government’s pension pool, while the annual addition of pensioners will keep the pool growing at a much faster pace.
How is defence pension governed in India?
- Several rules, regulations and notifications issued from time to time govern the defence pension in India.
- The current colour service period (minimum period a soldier has to serve before retirement) is 17 years and services in the armed forces become pensionable after completion of 15 years. This means that every soldier serving for a minimum colour period is also eligible for the pension.
- Currently, India has around 40 types of pensions.
- Pension is largely disbursed by the Defence Pension Disbursement Offices of the defence ministry and also by the commercial banks.
- The main types of defence pensions include service pension, ordinary family pension (in case of natural death of the individual), special family pension (in case of death attributable to military service), liberalised family pension (for the family of a soldier killed in the war, war-like operations etc.), disability pension and war injury pension.
What are the recommendations provided by various committees?
Despite numerous discussions, little has been done to reform the defence pension. Some of the salient reforms suggested by several committees/commissions include the follows:
Kargil Review Committee (KRC):
- Constituted in 1999 under the chairmanship of late K.Subrahmanyam, KRC was among the first few expert bodies that called for the containment of the defence pension, especially of the Army.
- It observed that the Army pension bill has increased since the 1960s and is becoming an increasing burden on the national exchequer.
- It called for the reduction of the colour service period from 17 years to improve the age profile of the army and to reduce the pension cost.
- To safeguard the career prospects of the army personnel, the committee had also called for recruiting of paramilitary personnel as per the national military standards.
- Those selected will be sent for training to be absorbed in the Army for the period of colour service before reverting to their parent paramilitary formation.
- This suggestion is not yet been adopted by the government.
Group of Ministers (GoM):
- Set up in 2000, the GoM examined the KRC’s recommendations and had pointed out two key manpower issues that had a significant impact on the defence pension – age profile and lateral entry.
- Like the KRC, the GoM had also voiced the concerns regarding the unfavourable age profile of the defence forces and had called for the reduction of the number of colour services.
- If this recommendation had been implemented, there would have been a significant impact on the pension, as the reduction of colour services below the pensionable service of 15 years would have led to many retiring without a pension, like it was before 1976.
- Though the GoM recommendations do not refer to the KRC’s indirect mode of recruitment, reference was made regarding the lateral entry in paramilitary forces as part of solutions to reduce colour service and pension burden.
AV Singh Committee:
- Set up in 2001, the AV Singh committee’s recommendations were limited to the officer cadre of the armed forces.
- To improve the age and command profile of the officers, the committee had suggested time-scale promotion of officers of up to Lieutenant Colonel or equivalent rank and creation of nearly 2,650 senior-level posts at the level of Colonel and above ranks.
- To reduce the financial implications caused by the increase in the number of posts at the senior level and early promotion of officers, it called for having 50% of the officers cadre as Short Service Commission officers.
- However, the induction of SSC officers never reached the 50% level as recommended by the AV Singh Committee.
- Furthermore, in due course, the majority of male SSC officers were given permanent commission – a privilege that is now extended to the female officers of all three services through the Supreme Court interventions.
- Thus, the original intension of the AV Singh Committee with regards to the reduction in age profile and better promotion prospect and lower pension burden has not been realised.
Standing Committee on Defence of the 14th Lok Sabha:
- This committee took up the GoM recommendations, including the reduction of colour service and provisions for lateral entry into the paramilitary force for detailed examination.
- Though no new recommendations were made, several key issues that have hindered further progress were pointed out. These issues related to:
- Fixing the inter-se seniority of the transferees in relation with original inductees of the CAPF without adversely affecting the latter’s promotion prospects.
- Disparities in the pay and allowances and perks of the CAPF and Army transferees
- Issues of reservation of backward classes, women and state-wise quota in relation with no quota system in the armed forces
- Adverse impact on the age profile of the CAPF due to the lateral entry from the defence forces
5th Central Pay Commission:
- The 5th CPC, which presented its report in 1997, may have been the first expert body to have pointed out the manpower issues of the armed forces in a comprehensive manner.
- This commission called for the restructuring of the armed forces with a 30% reduction in manpower strength in 10 years.
- The downsizing of the armed forces was recommended to reduce future pension liabilities.
- The commission made numerous other recommendations related to the pension issue.
- These include the reduction of colour service and lateral induction into both the defence and non-defence sectors and withdrawal of the armed forces from the non-core functions.
- It also called for massive “civilianisation of posts in static, rear and administrate support organisations and workshops in the three services”. This recommendation is significant because the cost of the civilian employee (both while in service and post-retirement) is less when compared to a combatant.
7th Central Pay Commission:
- The 7th CPC, which presented its report in November 2015, is the first to directly refer to the National Pension Scheme as a possible option to curtail defence pension liability.
- It called for the implementation of a Defined Contribution Scheme for defence personnel.
- Under this scheme, an employee makes a contribution and a suitable amount is contributed by the government so that a sizable corpus is built up.
- On the issue of lateral entry into the CAPFs, the commission recommended the following measures:
- The primary focus of lateral entry into the CAPFs should be on personnel retiring from the ranks of Sepoys or their equivalents as opposed to personnel from other ranks
- Sepoys, after completion of seven years in the armed forces, should be given an option to transfer to the CAPF with seniority and pay being protected
- Those joining CAPF after seven years of service in armed forces must be given a one-time lump sum amount, which should be 10.5 times the last pay drawn. After joining CAPF, they would continue until the retirement age and be covered under the National Pension Scheme.
- The vacancies of Constables in the CAPFs may be filled from Sepoys leaving after 7 years.
What are the arguments against reducing colour service period?
Past recommendations have called for the reduction in colour service from the current 17 years. The implications of these recommendations include the follows:
- This intangible element has a high impact on military effectiveness.
- While pay, perks and privileges may not be the only factors affecting the morale of the soldiers, the honour and pride associated with being duly compensated remain imperative to enhance functional efficiency and performance under the most difficult operations.
- An infantry soldier in general duty is trained for specialist functions after 6 to 7 years of service.
- To release a soldier at this stage is a waste of a valuable asset after years of training and investment.
- Furthermore, the existing rank structure permits promotion and upgradation only after a certain number of years of experience, qualification in training courses and other examinations.
- These aspects also commence only at around 7 years of service. Any attempt to circumvent this would disrupt the organisational requirement of rank and service-specific demands of a battalion.
Lack of experience:
- It is not necessarily a young soldier with two to three years of service who is considered the fittest for battle as a solider with more than five years in the army often is more experienced and adept to soldierly responsibilities.
- The induction and training of soldiers are not based on their intake qualifications. Rather, it is based on how a battalion grooms and moulds them.
- This is why an infantry battalion places more faith in highly experienced soldiers.
- Reducing the colour services to seven years would mean a much faster turnover of soldiers.
- This would, in turn, require frequent upgradation of training infrastructures to carter for additional trainees.
- There will also be an increased demand for instructors and support staff, which then would negate the logic of the colour service reduction.
- If the reduction in the coloured service period is implemented, it would apply to those in specialised services of the armed forces. These individuals are highly educated and trained manpower. Constant training of new recruits in these areas would require high investment and a longer time.
What are the recent proposals put forth by the DMA?
The new Department of Military Affairs, which is headed by the Chief of Defence Staff General Bipin Rawat, has announced a major reform for the military to curtail the pension bill. These include the increase in the retirement age of officers and reducing pensions for those seeking Pre-Mature Retirement (PMR).
Increase in retirement age:
- The age of retirement has been increased for senior defence service officers – colonels, brigadier and major general and their equivalent ranks in the Indian Navy and Indian Air Force.
- The retirement age of Junior Commissioned Officers and Other Ranks in Logistics, Technical and Medical branches have also been proposed to be increased.
- As for the Indian Army, the Army Ordnance Corps, Electronics and Mechanical Engineers and the Army Service Corps have also been included.
Reduction of pension:
- Another proposal is that officers who retire prematurely should get only a certain percentage of the stipulated pension.
- Under this proposal, those with 26 to 30 years of service would get only 60% and those with 31-35 years of service would get only 75% of entitled premature retirement pension.
- Only those officers retiring with over 35 years of service would get full pensions.
- The aims of these reforms are to:
- Retain highly skilled manpower within the Services
- Discourage officers from leaving the force in their prime.
- Reduce the size of pension liabilities
- Reduce the cost of training recruits at more frequent intervals.
What are the issues with the new proposals?
- Implementation of these proposals would mean that top officials the steep pyramidal hierarchy of the Services would continue to fill their present posts for a longer period.
- This would lead to the stalling of promotions, which would exacerbate the fraught situation wherein officers who are not up for promotions would have to continue serving at their current ranks for a longer time in order to qualify for a full pension.
- Recruitment and retention at lower ranks would lead to many questioning why they should bother serving 20 years or more for half the pension.
- The motivation of the armed forces is vital for ensuring successive defence system. It would be unwise to retain dissatisfied officers at the cost of reducing the pension bill.
- These reforms further curtail perks and privileges. This makes the task for selectors at the Service Selection Board much more difficult.
- These reforms are seen as “bad for the individual and worse for the organisation”.
- There are a set number of vacancies in each rank and the increase in the retirement age will reduce the number of vacancies as well as increase stagnation and supersession in the defence service.
- Apart from the ethical questions around abruptly and drastically changing the terms of service and pension, the other issue with the proposal is that these changes are outside the jurisdiction of DMA.
- Alteration of terms of employment and pension structure does not come under the purview of the GoI (Allocation of Business) Rules, 1961, under which DMA’s responsibilities are codified.
- In addition, these proposals will also skew the average age of the military, which would undermine the measures taken over the past years to keep the forces “young and fighting fit”.
What can be the way forward?
National Pension Scheme (NPS):
- The NPS was introduced for all central government employees in 2004.
- However, the armed forces personnel were excluded because their working conditions are different from the civilian workforce of the government.
- However, the central armed police force (CAPFs) personnel were included in the NPS, though their working conditions are different from their civilian counterparts.
- Under this scheme, a subscriber can contribute regularly in a pension account during his/her working life, withdraw a part of the corpus in a lump sum and use the remaining corpus to buy an annuity to secure a regular income after retirement.
- This scheme can also be used to bring down the defence pension cost.
- It can be reformed for the armed forces so that they can receive more benefits than the civilian workforce.
Lateral entry of the armed forces:
- Lateral entry of the armed forces personnel into the CAPFs and state police can reduce the pension bill.
- However, this should not be done at the cost of the already slow-moving career of cadre officers.
- Lateral entry ensures defence personnel receiving financial security and the recipient organisation receiving trained soldiers without the gestation period of recruitment and initial training.
- Since alternative career is offered, no special pensionary benefits to compensate for the short tenure at the armed services would be needed.
- There will be no reduction in employment opportunities because the fall in the number of vacancies for recruitment in these organisations would be compensated by a corresponding rise in opportunities in the armed forces.
Reverse Lateral shift:
- 30-40% of personnel selected for CAPFs could be trained and inducted into the armed forces for about 5-7 years. They could then be reverted back to the CAPFs.
- Training and service in the armed forces can be considered as a cross-attachment.
- This ensures CAPF personnel receiving experience in anti-terrorist operations, counter-insurgency operations and disaster management duties.
- They could be members of the NPS during their army attachment and should be permitted to transfer the NPS scheme to their respective CAPFs.
- This would considerably reduce the expenditure on training and training infrastructure of CAPFs while also reducing the defence pension.
- This scheme could be extended to the state police and select civil organisations at the state and central levels.
- A joint recruitment board consisting of representatives from CAPF and defence forces headquarters could be constituted to select officers and jawans for the lateral shift or reverse lateral shift.
- Screening for lateral shift should be carried out after 5-7 years of service in the defence forces in a way that there is a balanced age profile in both organisations.
- In the case of reverse lateral shift, selection should be immediate after recruitment in the CAPFs.
- Lateral shift and reverse lateral shift ensures substantial financial savings in recruitment, training and training infrastructure.
- It will also provide alternative employment for defence personnel retiring in their youth.
- This will keep the armed forces young and ensures a select percentage of CAPFs and police personnel are trained in the military environment.
- To provide longer career prospects to the personnel retiring early from the armed forces, the government has mandated reservation of jobs that includes 10 to 24.5% in various central government ministries/departments, public sector enterprises, nationalised banks and 100% in the Defence Security Corps.
- However, the strength of ex-servicemen in these jobs was just 1.94% due to the lack of training and qualification.
- These posts can be utilised by the central government to reduce the pension burden. Necessary training and skill development can be ensured in this front.
Streamlining of pensions:
- In cases like the Defence Security Corps (DSC), which provides security to defence ministry sites, the personnel get a pension from the new organisation after serving minimum tenure as well as the from the earlier Service, leading to them receiving two pensions.
- This can be streamlined to be more financially rational.
- The suggestion of releasing soldiers after 7 years of services can be an option for a few.
- It should be allowed based on the individual’s choice and the willingness of the army to relieve them provided it does not adversely affect the operational efficiency of the regiment.
Reducing operational costs:
- Structural changes must be undertaken within the armed forces through greater integration, indigenisation of defence production and removing redundantness.
- This requires the government’s support to ensure optimum results.
- The initiatives to reduce officers in the army headquarters, rationalising the numbers within field formation, looking at the option of joint theatre commands are all steps in this direction.
- This will reduce the number of soldiers, thereby lowering pay, allowances and pension costs.
- This is a better option than keeping the existing size of the army and lowering the coloured services of the soldiers.
- Outsourcing can reduce payment and pension liabilities.
- Sub-contracting non-critical tasks like transportation of goods and other logistics in non-sensitive areas and maintenance and repair of equipment eliminate the necessity to maintain large specialised cadres to cater to these needs.
- The Indian Navy is already outsourcing for various operational requirements like ship rift and overhaul, engineering, technical support, IT, dredging and so on.
- In doing so, salaries and training liabilities will remain constant and pensions will be eliminated altogether.
In the current geopolitical scenario, it is vital to allocate funds towards modernisation of the defence forces. At the same time, it is equally important to guarantee long-term health and welfare of the backbone of the armed forces – its people. Reforming based on these aspects is vital for ensuring national security of the country.
Practice question for mains:
The newly established Department of Military Affairs has proposed numerous measures to curtain the increasing pension liabilities. Analyse the consequences of these measures and provide solutions to safeguard the interests of ex-servicemen. (250 words)