New pay panel announced. Here’s what happened after the last one

Subscribe to enjoy similar stories. In mid-January, the Centre announced the formation of the 8th Pay Commission to set future pay and allowances for central government employees. The previous pay commission was formed in 2013, and its recommendations, impacting both defence and civilian personnel, came into effect in 2016.

The new pay panel’s recommendations are likely to take effect from 2026, and have implications on the Centre’s finances and hiring. Implementation of a pay panel’s recommendations increases the cost pressure on the Centre’s budget due to salary and pension. The 7th Pay Commission, for instance, led to the share of salary and pension in the Centre’s revenue expenditure jump by about 3 percentage points between 2015-16 and 2016-17, to 25.6%.

But, it declined in subsequent years since total expenditure increased at a faster clip. For 2024-25, this figure is projected at around 21.6%. The big shift over the years is that pensions for retired employees—defence and civilians—have risen faster than the pay for current employees.

Pension payments now account for around 40% of the Centre’s total salary and pension bill, up from about 30% in 2009-10. Defence personnel account for about half the total pension bill, given that they tend to retire sooner than their civilian peers, which means longer payout periods. Another major factor for the increase in the pension bill is that the Centre went on a major hiring spree in the 1970s, notably in the railways.

That cohort of employees began retiring in the previous decade. One lever the central government has used to manage its wage and pensions bill in the face of successive hikes in salaries is to slow down its pace of hiring. Since the early 2000s, the gap between