Should old Pension Scheme come back?

Dr VK Bahuguna

January 10, 2023, 10:37:47   

Should old Pension Scheme come back?

(The writer was Director-General ICFRE in the Ministry of Environment, Forests and Climate Change)
The government of India in a major reform in financial sector stopped pension of all government servants recruited after 1st April 2004, except Armed Forces and; instead introduced a contributory market oriented National Pension Scheme (NPS) for its employees and also replicated in May 2009 for all citizens of the country. After a few state governments under political compulsions reverted to old pension scheme (OPS) for their employees, the Federation of Central Government Employees have become active and had written to the Cabinet Secretary for reverting back to the old pension scheme for Central Government employees recruited after 1st April 2004.In OPS the employees were getting 50 % of the last pay drawn.The NPS is managed by the NPS trust. The staff federation had stated that“It is amply clear that the NPS employees despite their contribution of 10% of their wages every month for their entire service is getting only a very meagre  pension and are worse off vis-à-vis the OPS. Further, the pension under New Pension Scheme (NPS)remains static and there is no Dearness Relief to compensate the price rise /inflation as available in the OPS.”There is a big opposition to the NPS from all quarters of beneficiaries both in the public and private sectors due to its inherent weakness in ensuring a sustainable and comfortable payment of pension afterretirement as after 18 years of its implementation several retired employees are getting a paltry sum and it has become difficult to live with that amount. 

One of the reasons for the Congress winning the Himachal Pradesh state Assembly Elections in November 2022 was that a big bundle of government employees votes were transferred on promise of implementation of old pension scheme. The Government of Rajasthan, Chhattisgarh and Jharkhand have already started implementing old pension scheme and Punjab is also considering reverting back to old system. The West Bengal government has not implemented the NPS at all so quite a good chunk of government employees in the country will be enjoying the benefits of old pension system. So far around 22.8 lakh Central government employees and 56lakh State government employeesenrolled under the NPS.This tussle on pension is going to become a seriouspoll issue for the political parties in garnering the votes of the employees in next Assembly and Lok Sabha elections. Let us examine the issue in its entirety. 

Indian Pension system for the government employees’ one of the better one with complete support from the exchequer was introduced by the British in 1857 after winning the war of independence. It was an extension of British system. However, it was the Royal Commission on Civil Establishments, in 1881, which first awarded pension benefits to the government employees. Since then after independence the governments’ servants were granted pension under the Central Civil Services (CCS) Pension Rules 1972 which now is based on 50% of the last salary drawn and is stepped up every year twice by Dearance Relief. The Article 309 of the constitution allows the government to regulate the service conditions of the employees and hence pension is a welfare oriented scheme as a tribute to employees for their work so that in their twilight years. Compared to it the NPS is a market driven two tier contributory pension schemes. We must all recognize that social security system in India is almost non-existent like in Europe and other developed countries. 

If we see the world pension architecture we find that the Iceland has the best Pension scheme followed by Netherlands, Denmark, and Israel etc. In most of the countries the beneficiaries do pay a minimum amount every moth but the excellent social security  guarantees schemes a minimum pension to everyone, even when very little, or nothing, has been paid into a pension fund like in Iceland. The situation is similar in other developed countries and the contributory system has an element of social security which works well. 

Under the Indian system when the government started financial reforms it was felt to reform the pension architecture in 2001 to reduce the burden on government. However, in Indian situation the government should have thought of its social implications due to volatile market system and just allowing its employees at the mercy of market forces who have given their prime for the country is unacceptable in a welfare state because an employ of the government maintains a minimum standard of living with his or her salary and suddenly they finds that they are at the mercy of market forces. The Pension reforms were sponsored mostly by private sector economists who earn quite well. The government considering the socio-economic profile of its people and absence of social security should have thought of first cutting the flab of over staffing and creating studied systemof sustainability. The way our institutions function and financial scandals country had faced in the past the NPS system is still evolving and is not a sure bet for maintaining and ensuring a better standard of living and has not proved to gain the confidence of  employees. The same is true of Employees Pension Scheme for the private and public sector undertaking where the Supreme Court has given some orders but these orders are still insufficient to lead a respectable life. 

It is therefore, absolutely necessary for better governance, to evolve a political consensus at least by the BJP and the Congress on Pension at the national level as the issue is going to be very emotive and unless serous thought is given to it, it will disarray the economy badly due to competitive politics and without checking profligacy in expenditure. The government must ensure that NPS must is made as sustainable in India as it is in other countries because they have social security elements inherent in their system. So first of all, the political parties must come to terms that we need a Pension system that is viable, sustainable and acceptable to employees. For this the government if it wants to retain the NPS it must create a corpus of few lakh crore and build it up every year by putting it in government securities so that the corpus could grow and meet the gap in pension from NPS so that after certain years of service the employees must get a fixed percentage of his last salary as guaranteed Pension.The second option is to go back to old system but with drastic cuts in the employees and to control it by an enactment of an Act of Parliament.