Notional Increment on Retirement for Calculation of Pension – 03.02.2002
OFFICE MEMORANDUM
Subject: Notional Increment on Retirement for Calculation of Pension
No. FD (PC)10-1/78(Pt-II). In exercise of the powers conferred under Section 23 of the Punjab Civil Servants Act, 1974 the Governor of the Punjab is pleased to direct that following proviso shall be added below rule 7 of the Punjab Civil Servants, Pay Revision Rules, 1977.
“Provided that a Civil Servant retiring on or between Ist June.and-30 November-in- year, shall for the purpose of calculation of pension only, be notionally allowed annual increment in the relevant pay scale, on the date of his retirement subject to the condition that he has completed six months continuous service at a stage in relevant pay scale during that year. This condition shall also apply to civil servant expiring during the said period.
This concession shall be admissible w.c.f.1-6-2000. Any claim of pension/commutation pertaining to a period prior to this date shall not be entertained.”
Notional Increment on Retirement for Calculation of Pension – 03.02.2002
Introduction: The concept of “Notional Increment on Retirement” refers to a hypothetical or assumed increment in salary, which is used to calculate the pension benefits of government employees. This notional increment is particularly relevant for individuals who retire before receiving their annual increment but are otherwise close to the date when they would have earned it. The Government of India issued several clarifications and guidelines on this matter, especially on 03.02.2002, affecting the calculation of pension benefits for retirees.
Understanding Notional Increment: In government jobs, salary increments are typically awarded on an annual basis. These increments play a crucial role in determining the final pension amount, as pensions are calculated based on the last drawn salary or average salary of a specified period before retirement. The “Notional Increment” is essentially an increment that a retiree would have received had they worked until the next increment date, but for their retirement just before that date.
For example, if an employee retires on June 30 and their annual increment is due on July 1, they miss out on that increment by just one day. Since the increment would have increased their salary, it also would have boosted their pension calculation. In such cases, the government allows the concept of a “notional increment,” which means that for pension purposes, the increment that the employee would have earned is considered in the calculation of the pension.
Background of 03.02.2002 Guidelines: On February 3, 2002, the Government of India issued specific guidelines to address the issue of employees retiring close to their increment date. Before these guidelines, retirees often missed out on the financial benefits associated with their increment because they retired just a few days before the increment was officially due. This created dissatisfaction among employees, as they felt that they were being unfairly deprived of a pension increase that would have been granted had they remained in service for a slightly longer period.
The guidelines clarified that if an employee retires on a date close to their increment date, they should be granted the notional increment for pension calculations. This ensured that retirees were not penalized for the timing of their retirement, which was often a matter of circumstance rather than choice.
Impact on Pension Calculation:
Pension is calculated based on the last drawn salary or the average salary over the last 10 months of service, whichever is more favorable. When the notional increment is considered, it increases the “last drawn salary” used in pension calculations, thereby raising the overall pension amount. This benefits employees who retire just before they are eligible for their next increment, ensuring they receive a fair pension amount reflecting their full earning potential.
The notional increment also affects the calculation of retirement gratuity and commuted pension, as both these benefits are based on the salary at the time of retirement. Including the notional increment in the calculation ensures that retirees receive benefits proportional to their complete service.
Conclusion:
The introduction of the notional increment for pension calculations in 2002 was a significant step toward ensuring fairness in the pension system for government employees. It prevents retirees from losing out on pension benefits simply because their retirement date happened to fall just before their next scheduled increment. By considering the notional increment, the government ensured that the pension calculation reflects the employee’s true earning potential, thereby enhancing financial security for retirees. This change has been particularly beneficial for individuals retiring at the end of a pay period, as it provides them with a fairer pension based on their full service and expected earnings.
