Govt finalising proposal to raise the retirement age to 62

Ten million govt officials, besides defence personnel, to benefit.

In a move that will benefit over 10 million central and state government employees, besides those in the defence services, the ministry of personnel is finalising a proposal to raise the retirement age of central government officials from 60 to 62 years.

If approved by the Cabinet, this will be the second time in nine years that the retirement age will be raised.

"Those who support the proposal feel it should be implemented in order to retain the collective experience. But there are people who say more young people shuld be brought into government services. We are discussing the matter," minister of state for personnel Suresh Pachauri told Business Standard. He declined to specify when the proposal would come before the Cabinet.

In 1998, the retirement age was raised from 58 years to 60, principally as a means of easing pension payments caused by a hefty increase in government salaries on the lines of the Fifth Pay Commission recommendations.

The move is expected to be politically beneficial for the ruling United Progressive Alliance (UPA) since the government servants constitute a large vote bank.

General elections for India's Parliament are due in early 2009 but the critical state elections in Gujarat and Himachal Pradesh will be held in December.

The move also comes ahead of a significant increase in salaries expected with the recommendations of the Sixth Pay Commission earl y next year.

The official reason for raising the retirement age is India's increasing life expectancy, which has improved from 62.86 years in 2000 to 68.59 years in 2007. The retirement age of the government officials in most developed nations ranges between 62 and 65 years.

The move is likely to have a significant impact on government finances which are now tied to Parliamentary commitments on fiscal prudence.

According to the Budget estimate for the current fiscal year (2007-08), the outgo on pay, allowances and travel expenses, excluding defence services, is Rs 46,379 crore, around 11.60 per cent higher than in 2006-07.

The central government has 3,32,1210 employees (excluding defence personnel) on its rolls, the number projected to go up marginally to 3,32,9682 in 2008.

The current retirement benefit for a retiring officer at the secretary level is around Rs 25 lakh, which is paid in one go. In addition, the pension is equivalent to 50 per cent of the last basic pay.

The move is also likely to impact state finances since the state governments typically follow the Centre's lead on such personnel policies.

The state governments are estimated to have a total of around seven million employees.

A serving secretary in the union government, who supports the move, said a decision will ultimately depend on the fiscal impact. Another secretary was a little skeptical.

"Personally, I feel it would be a retrograde move as it will lead to stagnation in the government. I feel 60 is a good age to retire at," he said.

A defence services official pointed out that the key benefit would be that the government will be able to tide over the pension liabilities for two years, especially as they would go up due to the Sixth Pay Commission award.