7th Pay Commission to get Cabinet nod soon, here’s why you will get 10 per cent less arrears in hand

The 7th Central Pay Commission recommendations are likely to be cleared by the Union Cabinet on Wednesday, leading to a much-awaited bonanza for 47 lakh central government employees and 53 lakh pensioners in the form of higher salaries and arrears from January 1, 2016, the date from which the recommendations will be made applicable.

However, if you are one of the working central government employees your arrears would come with a 10 per cent applicable deduction, that would be passed on to the National Pension System (NPS). Similar deductions are applicable to the increased salary component.

The 10 percent deduction from arrears and salary will come with a matching contribution from the government into the NPS for managing for creating a pension corpus at the time of retirement.

“The arrears that Central government employees will get with effect from January 2016 will come with 10 per cent deduction which will flow into their individual accounts under the NPS. There will be a matching contribution from the government,” Chairman, Pension Fund Regulatory and Development Authority (PFRDA), Hemant Contractor, told FeMoney.

It is expected that the increased salary and arrears would take effect from August 1, 2016.

Contractor said that the total amount that would flow into the NPS kitty from the 7th Pay Commission would be substantial. “We are expecting the money arising out of 7th Central Pay Commission recommendations will be released soon. The increased flow would be substantial. However, we have not been able to make an exact calcuation on the amount since we do not know the payment schedule. The amount would depend on the time and amount of arreards released in each tranche if it is released in parts,” the PFRDA Chairman said.

NPS is applicable to all employees joining services of Central Government, including Central Autonomous Bodies (except Armed Forces) on or after January 1, 2004. Many State Governments have adopted NPS architecture and implemented NPS mandatorily for their employees joining on or after a cut-off date.

A subscriber contributes 10 per cent of his salary plus DA into his Tier-I (pension) account on a mandatory basis every month which is invested along with the matching contribution from the employer.

The accumlation is managed by select pension fund managers (PFMs) as per guidelines laid down by PFRDA and is used for old age income benefit of subscribers. The pension regulator administer the National Pension System.

The 7th Pay Commission has recommended a 23.55 per cent hike in pay and allowance. While pay will go up by 16 per cent, increase in allowance will be 63 per cent and increase in pension 24 per cent. The impact the 7th Pay Commission recommendations on the government coffers will be to the tune of Rs 1.02 lakh crore, with Rs 73,650 crore impactg on the Union Budget and Rs 28,450 crore on the Railway Budget.

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