Explained: Cabinet clears 8th Pay Commission terms; pay hike likely by 2026

Panel to review pay, allowances and pensions for 1 crore employees; report expected in 18 months

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The Union Cabinet on October 28, 2025 approved the Terms of Reference (ToR) for the 8th Central Pay Commission (8th CPC), which will review salaries, allowances and pension benefits for central government employees and pensioners. 

 

The new pay commission is expected to make its recommendations within 18 months of its constitution.  

The government has named Justice Ranjana Prakash Desai (a former Supreme Court judge) as its Chairperson. 

 

The commission will include one part-time member (Professor Pulak Ghosh of IIM Bangalore) and a Member-Secretary (Pankaj Jain, Secretary  

It has 18 months from its formation to submit recommendations, and the changes will likely be made effective from January 1, 2026. 

 

It covers nearly 50 lakh (5 million) central government employees and approximately 69 lakh (6.9 million) pensioners. Once implemented, the Commission’s recommendations will benefit nearly 5 million Central government employees including Defence services personnel and nearly 6.9 million pensioners.

 

Why is this important?

 

Pay Commissions are the mechanism by which the government periodically reviews and resets pay, allowances, benefits and pension rules for its workforce. 

 

The last major review (the 7th CPC) had its recommendations implemented beginning January 1, 2016. 

 

With rising cost of living, inflation and changing service conditions, central employees, and pensioners have been awaiting a fresh revision.

 

What will the ToR ask the commission to look at?

 

According to the approved ToR:

 

• The commission must keep in view economic conditions of the country and the need for fiscal prudence. 
• The unfunded liability from non-contributory pension schemes. 
• Impact on State Governments’ finances, since many states adopt central recommendations. 
• Current emoluments, working conditions, and benefits available to employees in Central PSUs & private sector, for benchmarking.

The current pay-and-allowance structure of central government staff (and in a comparative sense, central PSUs and even private sector). Pension schemes, including the unfunded liabilities of non-contributory pension systems.  Interestingly, one clause present in the previous (7th) CPC—to look at “global best practices”—has been omitted this time. 

 

What’s the timeline & process?

 

Once constituted, the 8th CPC will submit its report within 18 months. 

 

Although the actual implementation date is not yet confirmed, many expect the new pay structure to become effective from January 1, 2026.  

After submission, the Cabinet will decide on the recommendations, and then formal government orders (notifications) will follow.

 

What might it mean for you (if you’re a central government employee or pensioner)?

 

Salary and pension revision: Very likely changes in basic pay, allowances (Dearness Allowance, House Rent Allowance, etc.), and pension terms. Some estimates suggest hikes could range between 30-34 % (depending on fitment factor, etc.). 

 

Dearness Allowance and basic pay linkage: One of the debates is whether DA will be merged with basic pay once it crosses a threshold — this has happened in earlier revisions. (It remains speculative for 8th CPC). 

 

Pensioners’ benefits: Since pensioners fall under the remit, their benefits may also see revision — this impacts large numbers of retired employees.

 

Budget & fiscal implications: With fresh hikes, the government will need to manage finances, especially since the ToR insists on fiscal prudence. This might moderate how aggressive revisions can be.

 

State governments follow suit: Although central recommendations are binding only for central employees, States often adopt them. So, the ripple effect may impact state government pay and budgets.

 

Things to watch / caveats

 

Fitment factor unknown: The “fitment factor” (which multiplies basic pay) is not yet decided, so exact raise amounts are speculative.

 

Allowances vs. basic pay trade-offs: Sometimes the basic pay is increased but allowances may change or freeze, so net gain may vary.

 

Time lag: Even after recommendations, there can be delays in implementation, arrears, etc.

 

State adoption is variable: States might adopt central figures partially or with modifications, so state employees should temper expectations accordingly.

 

Budgetary pressures: With large numbers of employees & pensioners, implementation cost is high — the government may phase or moderate changes.  What isn’t covered (yet): Some employee demands such as cashless medical benefit overhaul, old pension scheme reinstatement for post-2004 recruits, and an increase in “standard consumption norm” didn’t make the final ToR this round.