Happy times: DA hiked by 4% to 42%. Hopes for assured pension

The Union Cabinet has approved the Dearness Allowance a hike of 4% from January 1, 2023, for the central government employees. This was announced by Union minister Anurag Thakur on Friday night after the Cabinet Committee on Economic Affairs (CCEA)..The dearness relief for the central government pensioners will also see a leap by the same quantum. The decision will cost the exchequer ₹12,815.60 crores per annum.

Even though the government has no role in deciding the jump in the DA, the cabinet has to approve and the finance ministry has to issue the office memorandum before the hike reaches the hands of the central government staff. The DA hike is decided by the inflation or the All India Consumer Price Index for Industrial Workers (CPI-IW) which is released every month by the Labour Bureau of the Ministry of Labour. The Dearness Allowance for the Central Government Employees is calculated based on 12 monthly averages of the All India CPI-IW. Well established formula exists for this calculation

Read: New DA calculation formula as per the AI CPI-IW series with base 2016

The DA is revised every six months with effect from January and July every year. The last time it was hiked was in July 2022 with a hike of 4%. The next hike will be in July 2023. It is expected that the next revision will come with a hike of a Minimum of 3%.

Calculate yourself: Expected Dearness Allowance (DA) from July 2023 Calculator

In another significant move, the government have announced the setting up of a committee under the finance secretary to improve the New Pension System (NPS) with a view to taking care of the concerns of central government employees. Read Big Move: Govt announces committee to address concerns of employees on NPS. This comes in mid of the growing chorus for reverting to the Old Pension Scheme, which is statutory with assured benefits for life. Under the OPS, retired government employees received 50 per cent of their last drawn salary as monthly pensions. The amount keeps increasing with a hike in the DA rates.

Read: Assured returns/pension under NPS on the cards

The NPS was introduced for Central government employees in 2004 to replace the assured pension which the government felt that it was not financially viable. NPS, a defined contribution system, is unpopular with a sizable segment of government employees as returns are not guaranteed or adequate. All government employees hired after January 1, 2004, are now covered by the new pension scheme. It was illustrated that the NPS yields only a fraction of the pension in the old scheme. Read JCM illustrates that NPS yield only 15% of the old pension, and demands it back

As the employee's sentiments were growing against the NPS contributory pension scheme, many states including Rajasthan, Chhattisgarh, Jharkhand, Punjab, and Himachal Pradesh have reverted to the Old Pension Scheme (OPS) for their state government employees. Even though it may not be exactly the old scheme, it delivers an assured pension. The scheme proposed by Andhra for the first time in April 2022 offers a guaranteed pension of 33% of the last drawn basic pay without any deduction to the state government employees.

Earlier this month, the central government informed Parliament that it is not considering any proposal to restore the OPS in respect of the central government employees recruited after January 1, 2004.

The government is forced to take this step in revising the NPS in the backdrop of several non-BJP states deciding to revert to the DA-linked Old Pension Scheme (OPS) and also employee organisations in some other states raising demand for the same. 

Experts are of the view that it is important for any retiring employee to have the comfort of certainty in pension payments.

"A pension system that respects fiscal prudence and employee welfare would be a hybrid model where investment is in market instruments but fixed emolument is guaranteed at retirement," said Rani Nair, former executive director with PFRDA and retired as chairman of CBDT.