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Old Age Insecurity

Actuarial experts and pro-government scholars were perfectly right in showing the exchequer’s high financial burden of the government employees’ Old Pension Scheme (OPS),

P S M RAO |

Actuarial experts and pro-government scholars were perfectly right in showing the exchequer’s high financial burden of the government employees’ Old Pension Scheme (OPS), which provides a defined benefit and no employee contribution. But they were utterly wrong in recommending in its place the New Pension Scheme (NPS), which entails the defined contribution from the employees and some uncertain, paltry post-retirement benefit to them. These pundits’ excessive concern about financial costs made them relegate the government’s inalienable social security responsibility to the back seat.

The new pension scheme is not a freshly baked one; it was announced way back in December 2003 and launched on April 1, 2004. Its purported goal 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 to rise every year. The central government first introduced the NPS and gradually all the state governments, except that of West Bengal, applied it to their respective employees. Naturally, the employees reject the scheme; but their refusal and protests are more vocal now than at the time of its introduction two decades ago.

Unfortunately, the protests against any unsavoury policy changes become vehement only when the people feel their actual impact, not when the changes are made. For instance, the opposition to rising oil prices is more tangible now, when people are acutely feeling their burden, than at the time when the administered price mechanism to facilitate this rise was dismantled about two decades ago. So, are the employees now agitating since the new pension scheme did not immediately affect those in active service at that time since those recruited after January 1, 2004, were brought under the scheme’s purview.

Now, the employees in state after state are launching agitations seeking revival of the Old Pension Scheme. Already, Rajasthan, Chhattisgarh and Jharkhand have reverted to the old scheme; Delhi and Punjab have decided to follow suit while A.P employees are demanding that the poll promise of Chief Minister Y.S. Jagan Mohan Reddy to restore the old scheme be fulfilled. Also, employees in Tamil Nadu and several other states are in agitation. So, a continuation of the new scheme is not sustainable after a few states have budged under employees’ pressure, no matter the experts’ warning of the financial unsustainability of state finances. Under the new scheme, the employees contribute to the pension fund every month, throughout their career life, a sum equal to 10 per cent of their Salary and Dearness Allowance and the government contributes another 14 per cent (hiked from the original 10 per cent).

At the time of retirement, the corpus (the total of contributions plus the investment returns) is used to purchase a fixed annuity, with an option to withdraw a portion, as a lump sum. So, under the new scheme employees also have to contribute and the market determines the return and pension sum, whereas the old scheme did not require any contribution from employees but assured a pension sum equal to 50 per cent of the last drawn salary, a fair amount of pension, and an accepted norm. The ILO in its Social Security Convention 102 (held in 1952), confirmed that the pension sum should be fixed at 50 per cent of the insurable salary.

Although the word ‘insurable’ is a hitch, the spirit of the norm was 50 per cent assurance. Also, pertinent here is the ILO’s other recommendation that the social security schemes be administered on a tripartite basis, which guarantees and strengthens the social dialogue between Governments, employers, and workers. The ILO’s recommendation is for the working community as a whole, not just for government employees, whose share in total employment in India is not very significant. True, the organized sector employment in the country is less than 7 per cent of the workforce and that of the public sector is about 4 per cent.

Thus, the pension scheme in question pertains to only the government employees – at best about 35 lac central government and a little more than one crore state government employees. The new scheme in effect pertains to much fewer numbers because it mandatorily covers only those recruited after January 2004. Notwithstanding its insignificant share in total employment, 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 the ‘equal pay for equal work’ norm in the society.

Usually, the workers with relatively high wages are criticised for asking more; the derision mostly comes from the employers and entrepreneurs who themselves are responsible for creating the anomaly by not willing to part with their excess share in the national cake and for disallowing the workers their due. Overall, old age security is not getting adequate attention while the number of senior citizens, aged 60+ is rapidly increasing. Their share in the total population had increased from 5.5 per cent in 1951 to 8.6 per cent in 2011.

India, with a 138 million 60 plus population, in 2021(104 million as per the 2011 census), accounts for 12.5 per cent of that category in the world; the UNPF forecasts the number to rise to 173 million by 2026 and an NSO report anticipates it to swell to 194 million in 2031. The old-age dependency ratio in the country climbed from 10.9 per cent in 1961 to 14.2 per cent in 2011 and is projected to increase to 20.1 per cent in 2031. The situation calls for adequate financial support for the elderly. But the pension system in the country, even to the organized sector workers, is defective and unscientific.

The pension benefits available to different segments of society depict the anomaly. For instance, an MLA gets a full pension for a lifetime for serving five years; the Madhya Pradesh MLA gets the pension even for one day’s service. Similarly, a seven-time MLA from Haryana Assembly is getting Rs. 2.38 lac monthly pension. A Telangana one-time elected MLA gets Rs.50,000 monthly pension and Rs.75,000 if elected more than three times. An MLA in A.P gets a monthly pension of Rs.30,000 and in Tamil Nadu of Rs.40,000.

Different states have fixed different sums for their legislators. Compare this with the millions of employees covered under the Employees Provident Fund (EPF) pension. Most of the executives who had drawn Rs 1 lac and more are getting pension amounts around Rs.1,500; the recently retired may at best be getting a thousand rupees more. This is because their pension is calculated based not on their total salary but on the insurable salary on which contributions were collected.

The scheme which came into being in 1995 till recently had Rs.6,500 insurable salary limit (now raised to Rs.15,000). As per the pension formula, one gets a maximum pension of Rs.3,250 after 35 years of service. The minimum EPF pension was raised to Rs.1,000 after the government found that 83 per cent of EPF pensioners were getting a monthly pension of less than that amount and 27 per cent were getting even lesser, less than Rs.500. So, during post-retirement life, workers who had contributed for not only the pension fund but to national wealth through decades of hard work fall below the poverty line levels of income; even the destitute pension given as part of the government’s welfare programmes is at times higher than the EPF pension.

For instance, the Telangana government gives an old pension of Rs. 2,000, A.P at present gives still more, Rs.2500, and has proposed to raise it to Rs.2,750 from January 2023. Delhi and Haryana governments, too, give a monthly Rs.2,500 as an old age pension. All this suggests that there is an urgent need to raise the pensions to all those workers who are not getting equal to half their last drawn salaries but without reducing the pensions of those few who are already getting it.

Governments are expected to improve the existing levels of benefits; if they cannot, they should not at least reduce them. They should not bring in inferior schemes which amount to a reduction. Viewed from any angle, it is unjust not to revert to the old pension scheme