Government mulls extending retirement age of Central Government Employees may save Rs 7000 crore

Government mulls extending retirement age of Central Government Employees may save Rs 7000 crore

In an attempt that may save of Rs 7,000 crore to the exchequer, the Centre is believed to be mulling extending the retirement age of government officials,  reports CNBC-TV18’s Siddharth Zarabi. The move follows the suite of the Delhi State Government which extended the services of retiring officials by two years.

There is strong political rationale for the same. Delhi becomes the second state after Chhattisgarh to extend the service by two years. This is not an increase in the retirement age which is statutorily at 60 years. It is only an extension, which can hypothetically be revoked at any point of time.

However, there is also a fiscal rationale which will be of a greater impact. A total of around 3.45 million central staff estimated in the current year. If this were to be deferred, two savings accrue.

One is the pension head. Assuming 10 percent of this number retiring over the next two years, the current year savings alone would be Rs 7,000 crore on account of pension liabilities.

Gratuity could also be calculated at an average age of service of 33 years. It is completely hard to estimate as it is linked to various variables including the retirement profile within the central government. It is very different from the private sector.

The other side is that if you were to extend services by two years, one is not just saving but also paying their existing employees along with the allowances, which are increased every six months. It will add to the total wage bill, which is around Rs 1, 21,000 crore for the centre in the current financial year.

The total financial trade off could be just a few thousand crore but the larger significance is the politics. It will be explained as a fiscal measure as the government is also scrimping around to save every penny. However, the political impact including in a state like Delhi will perhaps be very visible in favour of the ruling establishment.
Source:  http://www.moneycontrol.com