In a liberal proposal, the Sixth Central Pay Commission has recommended full pension benefit to government employees after 20 years of service, as against the existing 33 years.

The hike in gratuity limit to Rs 10 lakh, exclusion of the earned leave encashed while in service from the overall limit, clubbing of earned leave and half-day pay leave for encashment and higher pension to octogenarians are the other liberal steps suggested by the commission.

The commission's recommendation, which will result in an overall hike of 40 per cent in pension and family pension, will cost the central government an additional Rs 1,365 crore per annum.

However, the commission has kept static the rate of pension of emoluments on completion of the minimum prescribed years in service at 50 per cent.

"While the commission has not recommended any change in the present replacement rate of 50 per cent, it has been positively liberal in reducing the number of years of service to 20 years (against 33 years) in order to earn full pension benefit," said Kavim Bhatnagar, pension policy consultant, Invest India Economic Foundation.

In another significant proposal, the commission has proposed to change the commutation formula and outsource the commutation process to public sector banks. This will save the government Rs 2,344 crore annually.

If implemented, the government will bear only some notional subsidy on account of the interest payable to banks by the employees who decide to commute a part of their pension, as against the entire amount plus interest cost.