How Government Pension is Calculated?

In the Old Pension Scheme, what happened was simple: the month you retire from your government job, you would get 50% of your last drawn basic salary as pension, plus Dearness Allowance (DA).
If that sounds confusing, let me explain in simple English.
Imagine, a man, named, Sarkari Babuji, He was a level 11 officer. (here are purely imaginary, there’s no relation with real life,okay)
So, Sarkari Babuji completed his service and retired. At the time of his retirement, his last basic pay was ₹74,100.
Now this ₹74,100 becomes the base for calculating his pension. Here’s how the government works it out:

1. Take the last basic pay → in Sarkari Babuji’s case, it was ₹74,100.
2. Calculate 50% of it → 50% of 74,100 = ₹32,050.
3. Add the Dearness Allowance (DA) → Suppose the current DA is 58%.
4. 58% of 32,050 = ₹18,589.
5. Add them together → 32,050 + 18,589 = ₹50,639.

So, Sarkari Babuji would receive ₹50,639 every month as pension. And the best part? This amount keeps increasing whenever DA increases. So the pension grows with time, protecting him against inflation. And there are also some rules where age plays an important role. For example, the 50% pension of the last drawn basic pay can increase with age—rising to 60% or even 70% in certain cases as the retiree gets older.However, leaving that aside for now, this is the basic way pension is calculated under the Old Pension Scheme.

Why the 8th Pay Commission Matters for Pensioners and Employees?

The 8th Pay Commission matters both for those who are actively in service and for those who are retired, because it revises the basic pay upwards. The government presents a fresh pay matrix in which all basic pay and increments are higher, so even pensioners also benefit from it.

How Pension is Calculated in 7th Pay Commission?

According to those rules, the pension is based on 50% of the last drawn basic pay plus Dearness Allowance — but again, this applies only under the Old Pension Scheme.

Expected Pension Under the 8th Pay Commission

It all depends on what fitment factor the 8th Pay Commission finally decides., it all depends on fitment factor. It may be possible that the government will bring in a new system—a new method for calculating pensions—even under the 8th Pay Commission salary structure.
If we look at respected research houses and major outlets, the current range of expectations runs roughly from 1.8 to 2.46.

• Kotak Institutional Equities projects a fitment factor 1.8, taking the minimum basic pay from ₹18,000 to ₹30,000,
• Ambit Capital has discussed that fitment factor could be 2.46, it will incrase 30-40% pension and even in salary.

So taking the Kotak scenario, so the minimum pension , we all know that 50% of minimum basic—would notionally move from ₹9,000 (under the 7th CPC pay matrix table 18000 is minimum basic pay) to around ₹15,000 (since Kotak has said that 30,000 ) before Dearness Relief (DR).
In other words, the expected 8th Pay Commission minimum pension for retired Central Government employees could be around ₹15,000 per month.

Is pension doubled after 80 years?

No, it’s not true, pension doesn’t double after age of 80 but increases by 20%, meaning, an additional 20% of last drawn basic pay pension is given to the pensioner. Then it keeps increasing, as the Government of India keeps enhancing the pension after certain ages. At age 85, 30% additional of last drawn basic pay is given to the pensioner; at age 90, 40% additional pension is given; at age 95, 50% additional of last drawn basic pay is given to the pensioner; and after age 100, 100% of last drawn basic pay is given as additional pension. So, after age of 100 years, pension is increased by 100%. Meaning, we can say that after age of 100, pension increases 100%, which means they get double pension. So, pension indeed doubles, but only after 100 years of age.

FAQs on Pension Calculation