We Owe it to Them and Ourselves that They Live, Not Merely Exist

Pensions as is understood today are financial arrangements designed to provide individuals with income during their retirement years. As a cornerstone of social and economic stability, pensions ensure that individuals can maintain a reasonable standard of living after leaving the workforce. This document explores the various types of pensions, their benefits, challenges, and the factors influencing the future of pension systems worldwide.

There are different classes of pensions and different conditions govern their grant. It is almost in the nature of deferred compensation for services rendered. The definition given in the Constitution of India¹ is not all pervasive and can be said to inclusive one. It is essentially a payment to a person in consideration of past services rendered by him. It is a payment to a person who had rendered services for the employer, when he is almost in the twilight zone of his life.²

Article 366(17)³ of the Constitution of India defines the term “pension” as under:

366. (17) “pension” means a pension, whether contributory or not, of any kind whatsoever payable to or in respect of any person, and includes retired pay so payable; a gratuity so payable and any sum or sums so payable by way of the return, with or without interest thereon or any other addition thereto, of subscriptions to a provident fund;

The Act which substantively devoted itself exclusively to the problem of superannuation pension was the Superannuation Act, 1834⁴. These are landmarks in pension history because they attempted for the first time to establish a comprehensive and uniform scheme for all whom we may now call civil servants. Even before the 19th century, the problem of providing for public servants who are unable, through old age or incapacity, to continue working, has been recognised, but methods of dealing with the problem varied from society to society and even occasionally from department to department.

A political society which has a goal of setting up of a welfare State, would introduce and has in fact introduced as a welfare measure wherein the retiral benefit is grounded on “considerations of State obligation to its citizens who having rendered service during the useful span of life must not be left to penury in their old age, but the evolving concept of social security is a later day development”. This journey was over a rough terrain. To note only one stage in 1856 a Royal Commission was set up to consider whether any changes were necessary in the system established by the 1834 Act. The Report of the Commission is known as “Northcote-Trevelyan Report”. The Report was pungent in its criticism when it says that:

[I]n civil services comparable to lightness of work and the certainty of provision in case of retirement owing to bodily incapacity, furnish strong inducements to the parents and friends of sickly youths to endeavour to obtain for them employment in the service of the Government, and the extent to which the public are consequently burdened, first with the salaries of officers who are obliged to absent themselves from their duties on account of ill-health, and afterwards with their pensions when they retire on the same plea, would hardly be credited by those who have not had opportunities of observing the operation of the system.⁵ (See, Gerald Rhodes, Public Sector Pensions, pp. 18-19).

There are various kinds of pensions and there are equally various methods of funding pension programmes. Initially this class of pension appears to have been introduced as a reward for loyal service. Probably the alien rulers who recruited employees in lower echelons of service from the colony and exported higher level employees from the seat of Empire, wanted to ensure in the case of former continued loyalty till death to the alien rulers and in the case of latter, an assured decent living standard in old age ensuring economic security at the cost of the colony.

In present day notions, pension is a term applied to periodic money payments to a person who retires at a certain age considered age of disability; payments usually continue for the rest of the natural life of the recipient. The reasons underlying the grant of pension vary from country to country and from scheme to scheme. But broadly stated they are: (i) as compensation to former members of the Armed Forces or their dependants for old age, disability, or death (usually from service causes); (ii) as old age retirement or disability benefits for civilian employees; and (iii) as social security payments for the aged, disabled or deceased citizens made in accordance with the rules governing social service programmes of the country.⁶

Pension can be available both in public employment and in private employment in different form. Pension can be defined benefit plan, defined contribution plan, government pension plan, hybrid pension plan, and individual retirement account. It inherently faces challenges such as ageing population, insufficient savings, economic volatility, sustainability of funding, lack of coverage.

Under Central Civil Services Pension Rules, 1972 (CCS Pension Rules, 1972)⁷, the term pension was defined as:

3.(1)(o) “Pension” includes gratuity except when the term pension is used in contradistinction to gratuity, but does not include dearness relief;

Same definition is retained under the CCS Pension Rules, 2021⁸ under Rule 3(t) therein. In fact, Rule 3(f) of the CCS Pension Rules, 2021 defines the term as:

3. (f) “Dearness relief” means dearness relief on pension and family pension as specified in Rule 52;

Rule 52 of the CCS Pension Rules, 2021 is an exhaustive rule dealing with the concept of dearness relief to be relief against price rise granted to a pensioner and lays down the methods of its applicability. Hence, it can safely be compared with the concept of dearness allowance which is payable to every serving employee in Central Government. Similar definition exists under different State Rules governing State government services.

D.S. Nakara case⁹, the Constitution Bench judgment deals with several issues of non-contributory pension in public employment.

The said judgment held that all pensioner form one class as a whole and cannot be micro classified by an arbitrary, unprincipled and unreasonable liability criteria for the purpose of revised pension.¹⁰

Thus, held that creating cut-off date to become eligible for revised pension scheme is not in consonance with directive principles of the Constitution of India and thus violative of Article 14¹¹ of the Constitution of India.¹²

If such criteria are made, the same can be severed from the one capable of being save, omitting the offending portion.¹³

In the said judgment it was held that introduction of cut-off date for revision of pension is possible only for computing the benefit and calculation of arrears but cannot be discriminate between pensioner retired from time to time.

In the context of scope of judicial review of legislation have held that a legislation need be examined in the touchstone of Part IV of the Constitution of India as the same provide for reliable yardstick for determination.¹⁴

The judgment has also been held that a statute does not become retrospective merely because a part of the requisite for its action is drawn from a time antecedent to its passing.¹⁵

The law laid down in D.S. Nakara case¹⁶ came for consideration time and again in several decisions before Supreme Court of India and have evolved in an organic manner. In Indian Ex-Services League v. Union of India¹⁷, dealt with the issue to One Rank One Pension in Armed Forces.

The aforementioned decision while interpreting liberalised pension scheme in the context of decision rendered in D.S. Nakara case¹⁸ provided for computation of pension according to pay for a more liberal formula raising the ceiling limit for pension. The Supreme Court held that where the mode of computation of pension is liberalised from a specified date, its benefit must be given not merely to retirees subsequent to that date but also to earlier existing retirees irrespective of their date of retirement even though the earlier retirees would not be entitled to any arrears prior to the specified date on the basis of the revised computation made according to the liberalised formula. In doing so all existing retires are required to consider as one class and further division within the class was held to be impermissible. The decision in Indian Ex-Services League case¹⁹ holds that the pensioner form a class as a whole and their computation cannot be by different formula affording in equal treatment solely on the ground for some retired earlier, some retired later.

The decision of Indian Ex-Services League case²⁰ in para 22 also had another issue of merger of dearness allowances (in short “DA”), wherein it was held that retrospective date in addition to pension held that a reckonable emolument which are the basis for computation of pension are to be taken on the basis of emoluments payable at the time of retirement and therefore there is no ground to include DA at the time when it was not paid.

Action Committee South Eastern Rly. Pensioners v. Union of India²¹, Supreme Court held that classification according to date of retirement for calculation of pension is not improper. In Union of India v. Deoki Nandan Aggarwal²², following in the law laid down in D.S. Nakara case²³ held that pension under liberalised scheme applicable to all but cut-off date for benefit can be introduced.

However, Union of India v. P.N. Menon²⁴, while upholding the power to introduce the cut-off date to be rational held that new scheme for pensioner may not give all benefits to all retirees due to various factors. Further, State of W.B. v. Monotosh Roy²⁵ while dealing with the benefit to a judicial official held that employee retired prior to Pay Commission recommendation is not entitled to all the benefit.

In B.J. Akkara v. Union of India²⁶ and in Union of India v. S.R. Dhingra²⁷, Supreme Court of India held that pensioners retired in different point of time do not form a homogeneous route.

The judgment of P.N. Menon case²⁸ can be said to be evolving a new dimension of jurisprudence in pension law departing from the principles of D.S. Nakara case²⁹ as it allowed the employer to give different pension amount to the pensioner based on various factors.

The Supreme Court of India thereafter while considering the jurisprudence in State of Rajasthan v. Prem Raj held that the decision of D.S. Nakara case³⁰ has not been given a complete go-by even though by that time certain judgment started developing little different in jurisprudence in this regard even thereafter the decision in Monotosh Roy case³¹ and certain other decision came to be delivered.

From the year 2002 to 2010, though certain departures were seen from the decision of D.S. Nakara case³². However, the judgment of D.S. Nakara case³³ has not been reversed or adversely commented upon in any of them.

Though certain judgment referred hereinabove allowed retires from different point of time given different treatment but State of Kerala v. B. Renjith Kumar³⁴ at para 21, while dealing with the effectiveness of the decision of D.S. Nakara case³⁵ went on to hold that “equal pay for equal work” is a part of fundamental rights as the same was propounded in Article 39³⁶ of the Constitution of India.

Union of India v. SPS Vains³⁷, All Manipur Pensioners Assn. v. State of Manipur³⁸ have held in favour of the decision of D.S. Nakara case³⁹.

In Sudhir Kumar Consul v. Allahabad Bank⁴⁰ held that fixing cut-off date for granting retirement benefit such as gratuity or pension under different schemes creating two distinct and separate class of employee is well within Article 14 of the Constitution of India and creation of such cut-off date can be justified on the ground of involvement of additional outlay or that the employee was not entitled to pension or retirement benefits.

In United Bank of India v. United Bank of India Retirees’ Welfare Assn.⁴¹ held that differential rate of dearness allowance to pensioner possible in view of settlement which has taken place with employee as the same is required to be taken as a package deal.

In Suchet Singh Yadav v. Union of India⁴², though the Supreme Court held that pensioner for the purpose of pension form one class. The schemes classifying pensioner are impermissible unless based rational foundation.

In Indian Ex-Servicemen Movement v. Union of India⁴³, the Supreme Court held that all pensioner who held some rank may not for all purpose form homogeneous class since it is possible that personnel in some rank may be availing different scale of pay in view of career advancement scheme.

Thus it can be said that though the decision of D.S. Nakara case⁴⁴ still holds good but the Supreme Court of India has now actually treated pensioner retired at different point of time to somewhat heterogeneous group for the reason as held in Indian Ex-Servicemen case⁴⁵ and allows the employer to create cut-off date for benefit in view of the decision in Sudhir Kumar case⁴⁶ but the benefit given to retirees are required to be given to all in view of the recent decision of the Supreme Court in Maharashtra State Financial Corpn. Ex-Employees Assn. v. State of Maharashtra⁴⁷ and thus after the cut-off date every pensioner is entitled to all benefit as a homogeneous class and denial of pay revision to some of the retiree held to be bad.

A pension scheme consistent with available resources must provide that the pensioner would be able to live⁴⁸:

(i) free from want with decency, independence and self-respect; and

(ii) at a standard equivalent at the preretirement level.

Thus, in order to ensure objectives of maintaining of living at a standard equivalent at the pre-retirement level there is a constant need to ensure long-term and short-term revision by the employer on favour of employee. Long-term revision can be by way of introduction of new and effective scheme(s) or revision following recommendation of Pay Commission to all pensioners taken as a class. Short-term revision must be by ensuring grant of dearness relief regularly, which is linked with price rise, inflation, etc. as mandatory measure. The moment there is denial of dearness relief either while framing revision of pay and allowances rules to retired employees and compelled them to wait for long-term revision, we are violating the law relating to pension who are entitled for non-contributory pension after retirement and making it a bounty not their right for the successful past services rendered by them.