New Delhi, November 1: With the Centre approving the Terms of Reference (ToR) for the 8th Pay Commission and setting an 18-month timeline for its report, lakhs of retired central government employees are closely watching how it could impact their pensions. Although pay commission discussions often focus on serving employees, pensioners — numbering 68.72 lakh as of October 30 — actually outnumber the 50 lakh central government employees.

The size of the upcoming pension hike will depend largely on the fitment factor, a key multiplier used to revise pay and pensions under each commission. Under the 7th Pay Commission, this factor was fixed at 2.57, meaning basic pay and pension were raised 2.57 times the previous figure. A similar multiplier will determine how much pensions rise under the 8th Pay Commission, but it will only be confirmed once the Union Cabinet clears the panel’s final recommendations. 8th Pay Commission: How the Fitment Factor Will Decide New Salary and Pension for Central Government Employees and Pensioners.

Experts say the calculation is straightforward. For instance, if the basic pay was INR 40,000 under the 7th CPC, a fitment factor of 2.57 raised it to INR 1,02,800, leading to a revised basic pension of INR 51,400 (50% of pay). If the factor rises to 3.0, the basic pension becomes INR 60,000; if it reaches 3.68, it jumps to INR 73,600. Thus, a higher fitment factor directly translates to a bigger pension hike. 8th Pay Commission: Know How Much Salary and Pension Are Likely To Increase for Central Government Employees and Pensioners From January 1, 2026.

According to payroll expert Ramachandran Krishnamoorthy, the same formula applies to all retirees — a higher multiplier automatically increases pensions, Dearness Relief (DR), family pensions, and even EPS (Employees’ Pension Scheme) benefits. For example, if DR is 20%, it scales up with the revised pension — INR 4,000 on INR 20,000 becomes INR 6,000 on INR 30,000 after revision.

Pensioners’ associations are also demanding that the government address long-pending issues beyond the fitment factor. Manjeet Singh Patel, National President of the All India NPS Employees Federation, said pensioners want the commutation period reduced from 15 to 12 years and better medical coverage under CGHS. He pointed out that many pensioners get only INR 3,000 per month for medical expenses in areas lacking CGHS hospitals — an amount he says should be raised to INR 20,000.

However, retirees must also prepare for a higher tax outgo. Pension is treated as “income from salary” under the Income Tax Act. A higher pension, along with Dearness Relief, raises annual taxable income — and consequently, tax liability.

The fitment factor will ultimately decide how generous the pension hike will be when the 8th Pay Commission’s report is finalized and approved by the Union Cabinet.

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(The above story first appeared on LatestLY on Nov 01, 2025 11:30 PM IST. For more news and updates on politics, world, sports, entertainment and lifestyle, log on to our website latestly.com).