Challenges of Ballooning Defence Pension in India

Context: Pension reforms in the defence sector are inevitable to reduce the rising pension burden in defence spending.

Need for Pension Reforms in the Defence Sector

• Rising burden of pension in defence budget: In the past ten years, the share of India’s defence budget going toward pensions has risen from 18% to 28%,
• Is slated to be nearly Rs 1.15 trillion next financial year due to One Rank One Pension (OROP) 
• As per OROP, personnel retiring at the same rank with the same length of service would get the same pension; and any future rise in the pension rate is automatically passed on to them. – (Open-ended and perpetual obligation)
• This has led to a decline in the capital spending for modernization and hardware: from 27% to 19% in 10 years.
• Early retirement at a young age: Every year, more than 60,000 army personnel retire (in the 35-45 years age) with full pension benefits after 20 years of service. 
• Less than 3% of the personnel are commissioned officers who make it to the senior-most ranks.
• Unlike India, developed economies budget is largely about social security payments recycled from working young to retired elderly. 

Way Forward

• Lateral and circular flows of servicemen: from internal security forces to armed forces and back.
• Army personnel can be deployed in understaffed security agencies such as the National Disaster Response Force, Civil Defence Corps or the Home Guards.
• Do not restrict recruitment in security duties only: recruit young retirees in general administration, management, even sales and marketing.
• Present pension savings (more than ?1.2 trillion) could be used in meeting challenge without reducing benefits in accordance with the age of retirement.
• Non-Lapsable pool of fund: The 15th Finance Commission had included a requisition to make a provision for a non-lapsable fund that could be rolled on from year to year.