In a major relief for retiring central government employees, the Department of Personnel and Training (DoPT) has issued a new directive ensuring pension-related benefits for those who exit service a day prior to their scheduled annual increment.
Employees retiring on June 30 or December 31 will now be granted a notional increment—a step that rectifies a long-standing grievance over pension calculations for such individuals.
Historically, the Central Civil Services (Revised Pay) Rules, 2006 had fixed July 1 as the sole date for annual pay increments. This was later revised under the 2016 rules, which introduced two increment dates: January 1 and July 1. Despite this, employees retiring on the last day of June or December would miss their pay hike by just one day, a technicality that had a direct impact on their pension.
The issue drew national attention after a 2017 ruling by the Madras High Court, which extended the benefit of a notional increment to a petitioner who retired just before their due raise. Although the DoPT initially limited implementation of the ruling to that specific case, similar disputes began to surface across various legal forums. The turning point came in 2023, when the Supreme Court ruled in favour of granting a notional increment to employees with a full year of satisfactory service. The judgment paved the way for broader implementation, and by 2024, this benefit began to be extended conditionally to more cases, reported News18.com.
Formal Directive Issued in May 2025
On May 20, 2025, the DoPT issued an official memorandum confirming the extension of this benefit to all eligible employees. The department said, ‘The matter has been examined in consultation with D/o Expenditure and D/o Legal Affairs. It is advised that… action may be taken to allow the increment on 1st July / 1st January to the Central Government employees who retired/are retiring a day before it became due i.e. on 30th June / 31st December and have rendered the requisite qualifying service as on the date of their superannuation with satisfactory work and good conduct for calculating the pension admissible to them.”
The Memorandum further clarified that this increment is applicable only for pension computation. ‘As specifically mentioned in the orders of the Hon’ble Supreme Court, grant of the notional increment on 1st January/ 1st July shall be reckoned only for the purpose of calculating the pension admissible and not for the purpose of calculation of other pensionary benefits,” it stated.
Pension Calculations and Limitations
Under the Central Civil Services (Pension) Rules, 2021, pensions are calculated based on the last drawn basic pay and the length of qualifying service. With the latest update, retirees whose service ends on June 30 or December 31 can now count the upcoming increment in their pension computation.
This notional increment is essentially a hypothetical increase. For instance, if an employee’s salary on June 30 was Rs 79,000 and they were due for a Rs 2,000 increment the next day, their pension will now be calculated as if their basic pay was Rs 81,000.
However, this benefit comes with limitations. The additional increment cannot be factored into other retirement-related benefits. Items like gratuity, leave encashment, commutation value, and group insurance will continue to be computed based on the actual last drawn salary, without the notional increment.
This move, though narrow in scope, is expected to bring clarity and fairness to a segment of employees who, until now, missed out on rightful pension adjustments due to the unfortunate timing of their retirement.