NPS- No pension scheme
New Delhi:- Discontent is simmering among the government employees and teachers over the Contributory Pension Scheme also called the National Pension Scheme that was launched in 2003 by the then NDA government. The united Andhra Pradesh government and later the Telangana State governments have also adopted the scheme.
As per this scheme, the central government employees appointed on or after January, 1, 2004 will come under this scheme. Until then, the government employees were getting pension as an additional post-retirement benefit. But, the new scheme provides for pension based on the contributions from the employees accrued in a fund set up for the purpose.
The Pension Fund Regulatory Development Authority Act (PFRDA) was enacted by the then UPA government in 2013 with the support of the major opposition, NDA. In accordance with the Act, the pension funds will be invested in the stock market and the quantum of pension being subject to its vagaries. The lives of the retirees would therefore swing as per the bulls and bears of capital market.
The government and the promoters of PFRDA Act argued that the retired employees are to be benefited immensely by the New Pension Scheme as the markets would yield them wealth. But, this wealth perceived is actually market capitalisation. Its estimates are just notional. In the previous scheme, the pension benefit was defined and calculated based on the last drawn pay. Apart from this defined pension, the retired employees in the old scheme would also get other benefits like gratuity and commutation.
But, in the new pension scheme, the quantum of pension is completely dependent on the price fluctuations in the market. If the market plunges due to one sentiment or the other, then the retirees would be losing heavily for no fault of theirs. Stock markets across the world are prone to either manipulation or speculation. The uncertainties deprive the government employees the luxury of planning their retired life as they become vulnerable to the peculiar behaviour of stock markets.
The CBT was “unanimously of the opinion that the proposals in the report … would seriously jeopardise the safety and future savings of the workers as well as the whole concept of social security and social insurance.” Even the Bhattacharya Committee, appointed by the NDA government, did not recommend only a ‘defined contribution’ scheme, which is the case with the New Pension System. It recommended a hybrid Direct Benefit /Direct Contribution or mixed scheme.
The policy of pension reforms emerges out of the World Bank report titled, “Averting the Old Age Crisis”. This report advocated pension sector reforms. The essence of the World Bank report was not to tackle the crisis faced by the elderly in their old age as professed in the title of the report , but , to resolve the ‘crisis’ of the pension pay out burden of the governments world over.
This new scheme works out as follows. The gratuity and commutation amount are paid out of the 60 percent withdrawn from the accumulated contribution of the employees during their service. The remaining 40 percent will be invested in the annuities. The income yielding out of this would be paid as pension.
In the old pension scheme, the amount was essentially dependent on the maximum wage one reaches by the time of retirement. The other benefits like gratuity, commutation availed in the old Pension Scheme are non-taxable but 60 percent withdrawals at the time of retirement under the New Pension Scheme are subject to taxation.
The pension amount earlier was guaranteed. But, now, it is left to markets. When the UPA government defended the New Pension Scheme stating that it would yield more returns than the pension obtained otherwise, Members of Parliament asked the government to ensure a minimum guaranteed pension in the PFRDA act itself.
The experience so far suggests that the net asset value accrued on these contributions is not even matching the bank interest. Thus, the employees who have earlier failed to comprehensively comprehend the implications of the New Pension Scheme started feeling the pinch of it. Hence, the disgruntlement!
The total amount accumulated accounts for about 44,000 crores. Similarly all the state government employees enrolled in the new scheme accounted for over 28 lakh. The total amount was to the extent of over Rs 50,000 crore. This accrual will increase each passing year.
Even the Supreme Court held that pension is a social security measure and is the fundamental right. The apex court in D.S. Nakara & Others vs. Union of India, 1982 stated that Pension is a right; not a bounty or gratuitous payment.
Pension also has a broader significance in that it is a social-welfare measure rendering socio-economic justice by providing old-age economic security to those who toiled ceaselessly in their youthful heyday. Privatising pension funds tantamounts to privatising social security and depriving the protective freedom enjoyed by the employees, who contributed to the government service for decades.
The PFRDA Act applies to those appointed after 2004. However, the pace with which pension reforms are implemented across the world leaves no guarantee that the Act will not be mandatorily extended to the employees recruited prior to 2004, who are now in the old defined benefit pension scheme.
In case, if the government does so, it is unlikely that the courts will strike it down as Supreme Court in many judgements held that when the State considered it necessary to liberalise the pension scheme in order to augment social security in old age to government servants it could not grant the benefits of liberalisation only to those who retired subsequent to the specified date and deny the same to those who had retired prior to that date.
How can one be deprived of choice of spending one’s surplus income? Even if the government ascribes to itself the parental role, the mandatory savings should yield minimum guaranteed and better returns. The risk-absorbing capacity of a retiree will be limited and it varies from individual to individual.
The governments often implement fiscal austerity regime. They are legally mandated to control expenditure under Fiscal Responsibility and Budget Management (FRBM) Act. In such a situation, the possibility of government slashing its share of the contribution by amending the Act cannot be ruled out. Noble laureate and former chief economist of World Bank, Joseph Stiglitz warned that pension privatisation can lead to worsening of economic crisis as evident from the experience of Argentina.
Source:- Hans India