Tuesday, September 8, 2009

IESM: Chairman's Desk- Highlighting Pension Disparity

Monday, 7 September, 2009 9:18:49 PM
Dear Colleagues,
I recall some figures that may be of use in reinforcing our arguments in support of OROP and why it is relevant for only defence personnel.
Take an example of military vs Police Service. Two young men of same age and same education background decide to join govt service. One joins military and the other the police. Both retire in their lowest rank of Sepoy/ Constable. If they both are living today at the age of 75 years, then their total earning differential, to the disadvantage of the Sepoy would be rupees 47 lacs. The difference for a Naik/ Head constable is 39 lacs. For Havildar/ ASI it is 29 lacs. It carries on similarly. For a Sub Major/ DSP it is 15 lacs.
Note: Figures as computed by our pension expert veteran Gen Surjit Singh
Best regards,
Lt Gen (Emeritus) Raj Kadyan, PVSM, AVSM, VSM
Chairman IESM.
Blog Link:
Military Pensions Screwed

Some observers would argue that military pay policy should be fair to service members as well as effective in meeting GOI, MoD recruitment and personnel requirements. Although fairness is a subjective concept, one possible criterion is that military personnel should not be expected to work for substantially less than what workers of a similar age and educational background earn in the civilian sector. That is, people driven to serve by patriotism or a strong sense of duty should not have to suffer a sharp financial loss as a result.

Comparisons of pay levels in the military and civilian sectors can help policymakers form their own subjective judgments about whether the nation is treating its military personnel fairly. Accurate assessments of what a specific person might earn in civilian employment are difficult to make. Broad comparisons of military and civilian earnings may be the most useful, however, depending on the notion of fairness. For example, it may be unfair to ask a college-educated officer to accept lower pay than most similarly educated civilians in the Government departments. But fairness may not require that GOI pay the pilots to whom it has provided valuable training as much as that training would bring them in the civilian sector.

The results of a broad comparison of pay levels might surprise people who are concerned about the fairness of military pay levels and people who believe--perhaps because of the reports of a pay gap--that military personnel are paid substantially less than civilian workers of a similar age and educational background. Throughout the course of a typical military career--in either the PBOR or officer ranks--military pay falls short of pay among comparable civilian workers.

Yet because fairness is a subjective notion, the comparison may not satisfy all observers. Some might argue that a fair system would require an even larger premium because of the sacrifices that military service entails. Others might contend that the eligibility of all service personnel for free rations is a clear sign that military pay is unfairly low, even though most qualify only because the rules governing eligibility for free rations do not consider all of their military pay. Any particular approach to comparing military and civilian pay levels cannot address all of the arguments that might be raised.

Because fairness is subjective, the findings by Maj Gen Surjit Singh deals only with the usefulness of the pension- gap concept as a guide to effective pension policy. Specifically, efforts to compare civilian and military pay levels or to track changes in relative salaries over a long period do not provide a useful guide as it seeks to meet its needs for well- qualified personnel. That conclusion is forcefully illustrated by the fact that comparisons of both wage levels and pay/ salary growth over time (after adjusting for some of the shortcomings in the conventional pay- gap measure) indicate that personnel below officer rank overall are not faring very well relative to their civilian counterparts. If those pension- gap indicators were used to guide policy, GOI should do well to bridge the increasing gap in Military Pensions further widened by the Sixth Central Pay Commission.

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