Security pensions, a separate NPS for the armed forces, and raising the POBR retirement age are all addressed in the 15th Finance Commission Report.

Security pensions, a separate NPS for the armed forces, and raising the POBR retirement age are all addressed in the 15th Finance Commission Report.

15th Finance Commission Report

Security pensions, a separate NPS for the armed forces, and raising the POBR retirement age are all addressed in the 15th Finance Commission Report.

As per 15th Finance Commission Report, the MoD has been examining various possibilities of reforms in defence pension, as deliberated by relevant Parliamentary Committee.  The extract of Para 11.66 is reproduced below:-

11.66 The MoD has been examining various possibilities of reforms in defence pension, as deliberated by relevant Parliamentary Committees. These are:

  • i. bringing service personnel currently under the old pension scheme into the New Pension Scheme (NPS) or a separate NPS for the armed forces;
  • ii. increasing the retirement age of personnel below officer ranks to a reasonable level;
  • iii. transfer of retired personnel to other services, like the paramilitary forces, after active service of a certain duration; and
  • iv. resettlement of ex-servicemen through skill development courses.

We recommend that the MoD take appropriate reform measures, without losing much time, on these lines or any other innovative approach, in order to ensure the growth of defence pensions are at para with non-defence pensions.

Para 3.81 of 15th Finance Commission Report is stating about the Defence Expenditure

3.81 Expenditure on defence services, on both revenue (excluding defence services pension) and capital accounts, as a proportion of GDP, has steadily decreased from 2 per cent in 2011-12 to 1.5 per cent in 2018-19 (Table 3.11). In 2020-21 (BE), such expenditure on revenue and capital accounts, again as ratios of GDP, are estimated at 0.9 per cent and 0.5 per cent, respectively. The defence revenue expenditure in 2016-17 increased by 13.3 per cent and in 2017-18 by 12.5 per cent mainly on account of higher outgo on salaries with implementation of the revised pay scales of the three defence services. During 2018-19, it increased by a further 5.1 per cent. Between 2011-12 and 2018-19, defence revenue expenditure grew faster (10 per cent) than the increase in defence capital outlay (4.7 per cent), and resulted in a reduction of the share of defence capital outlay in total defence services expenditure (excluding defence pension) from 40 per cent in 2011-12 to 33 per cent in 2018-19.

3.82 The total defence services expenditure (including defence services pension), as a ratio of GDP, declined from 2.4 per cent in 2011-12 to 2.1 per cent in 2018-19. It is budgeted to go down to 2 per cent in 2020-21 (BE). This decline has taken place even as defence services pension, again as a ratio of GDP, increased from 0.43 per cent in 2011-12 to 0.48 per cent in 2014-15 and further to 0.57 per cent in 2016-17 due to the implementation of revised pay scales and one rank one pension (OROP). It is expected to be at the level of 0.6 per cent in 2020-21 (BE). In 2020-21 (BE), the defence services salary and pension constitute around 59 per cent of the total expenditure of the Ministry of Defence, followed by capital outlay (24 per cent) and stores, adminstration of the defence services, construction of roads and bridges and the Coast Guard organisation accounting for the balance.

3.83 The capital outlay on defence services increased at the rate of 4.7 per cent a year from 2011-12 to 2018-19. During this period, the highest annual growth of 12.2 per cent was registered in 2013-14 and the lowest (-) 2.4 per cent in 2015-16. Capital outlay as a proportion of GDP has decreased from 0.8 per cent in 2011-12 to 0.5 per cent in 2020-21 (BE). Similarly, capital outlay as a proportion of total defence services expenditure (including defence pension) has declined from 32.6 per cent to 24.9 per cent during the same period.

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