Actuarial experts and pro-government scholars were right in showing the exchequer’s high financial burden from the Old Pension Scheme (OPS), but were wrong in recommending in its place the New Pension Scheme (NPS). The pundits’ excessive concern about financial costs may have made them blind to the government’s inalienable social security responsibility.
The new pension scheme is not a freshly baked one; it was announced in December 2003 and launched on April 1, 2004; first, the Union government and then, gradually, all the states except West Bengal implemented it. Yes, the goal of NPS was to reduce the ever-increasing pension burden—Rs 65,000 crore a year—on the Union and state governments at that time, with a 20 per cent expected rise every year if the OPS were allowed to continue.
Post-Impact Clamour
Naturally, the employees rejected the scheme, but their refusal and protests are more vocal now than at the time of its introduction two decades ago. Unfortunately, the people’s indignation becomes more tangible when a policy change starts impacting them than at the time that change was made. For example: We now see widespread outrage over rising petrol prices, but we did not see the same level of outrage when the administered price mechanism was dismantled about two decades ago (allowing market forces to control prices rather than the government), which was the direct cause of the current price rise because market prices were low at the time. So, are the employees now agitating since the new pension scheme did not immediately affect those in active service at that time since only those recruited after January 1, 2004, were brought under the scheme’s purview?
Employees in every state are demanding that OPS be restored. Already, Rajasthan, Chhattisgarh, and Jharkhand have brought back the old pension, while Delhi and Punjab have decided to follow suit. The Andhra Pradesh employees are vocal in their demand because the OPS restoration was one of the election promises of Chief Minister Y S Jagan Mohan Reddy. Similar protests are seen in Tamil Nadu and elsewhere.
The New Scheme
Under the new scheme, the employees contribute to the pension fund every month, a sum equal to 10 per cent of their salary and dearness allowance, and the government contributes another 14 per cent (up from the original 10 per cent). At the time of retirement, employees are given the option to withdraw a part of the corpus (the total of contributions plus the investment returns), and the fixed annuities are purchased with the remaining amount. That means the market determines the returns under the NPS, whereas the OPS does not require any of the employee’s contribution but assures a pension sum, equal to 50 per cent of the last drawn salary.
True, the pension scheme in question pertains only to government employees (who account for less than 4 per cent of the workforce)—at the best, about 35 lakh central government employees and a little more than one crore state government employees; actually, it affects fewer than this number as the NPS mandatorily applies only to those recruited after January 2004.
Yet, the government in a welfare state is expected to function as an ideal employer and to set an example to the private sector by providing decent salaries and post-retirement benefits to its employees, thereby eventually ensuring ‘equal pay for equal work’ norm in society.
Overall, old age security is not getting adequate attention while the number of senior citizens, aged 60 or older, is rapidly increasing, from 5.5 per cent in 1951 to 8.6 per cent in 2011. With 138 million people over the age of 60, India will account for 12.5 per cent of the global total in 2021. An NSO’s report anticipates the number to swell to 194 million in 2031.
The situation warrants a thorough revamping of the pensions now available to different segments of the population, which are irrational, to bring social justice.
Very high and very low
For instance, an MLA gets a full lifetime pension for serving five years; the Madhya Pradesh MLA gets the pension even for one day’s service. Similarly, a monthly pension of Rs 2.38 lakh is paid to a seven-time Haryana Assembly MLA. A Telangana MLA elected once receives a monthly pension of Rs 50,000, increasing to Rs 75,000 if elected more than three times. An Andhra Pradesh MLA gets a monthly pension of Rs 30,000, and one in Tamil Nadu gets Rs 40,000; different states have fixed different sums for their legislators.
Against this, the millions of employees covered under the Employees Provident Fund (EPF) get paltry sums. It was after the government found that 83 per cent of EPF pensioners were getting a monthly pension of less than Rs 1,000 and 27 per cent were getting even less, less than Rs 500, that it fixed the minimum pension at Rs 1,000. EPF pension is ridiculously designed in such a way that the employees with high wages of more than Rs 1 lakh also get a pension of Rs 1,500; of course, recently retired people may be getting around Rs 2,500. This is because the pension, under EPS 1995, is calculated on the insurable salary (Rs 6,500 until recently, now raised to Rs 15,000), not on the actual salary. The maximum pension one gets after 35 years of service under the scheme would be Rs 3,250, and in the future, with the present revision in insurable salary, it would be Rs 7,500. Thus, EPF members fall below the poverty line after their retirement, with pensions lower than the destitute pension in some states.
For instance, the Telangana government gives an old pension of Rs 2,000, and Andhra Pradesh gives Rs 2,500, which will rise further to Rs 2,750 from January 2023. The governments of Delhi and Haryana, too, provide Rs 2,500 per month to the poor as an old-age pension.
All of this suggests that there is an urgent need to increase pensions for all workers who do not receive at least half of their last drawn salary. The government is always expected to raise the existing levels of benefits, if it cannot, it should not reduce them. Viewed from any angle, it is unjust not to revert to the old pension scheme.
(The writer is a development economist and commentator on economic and social affairs.)