Pension worries

On Teachers Day, primary teachers of government schools in Assam joined their counterparts across the country in raising several demands, including the demand for immediate withdrawal of the new pension scheme (NPS) and reversal to the old scheme. On this issue, other government employees too are making common cause with government teachers in State after State. The common grouse against the new pension scheme is that the very fincial security of government employees after retirement has been put into uncertainty, and that several benefits they received under the old scheme have been stched away. In Telanga, gazetted officers too hit the streets in protest last month, lamenting that many superannuated employees are yet to receive their pensions under NPS, even though a fixed percentage was deducted from their salaries every month since the scheme was introduced in 2005. Many government employees complain that under NPS, there is no provision for family pension to the spouse of the pensioner after his/her death — which has caused much distress to families of deceased government employees. Others point to the lack of clarity about the amount to be received and the benefits that will accrue at the time of retirement due to investing in General Provident Fund (GPF), in which 10% of their monthly salaries were put. Among other things, primary teachers sitting on dhar at Dispur Last Gate on September 5 vented fury at the fact that they will have to pay income tax on the amount they will receive on retirement. The oft repeated allegation is that government employees after retirement will be put at the mercy of private operators when it comes to maging their pensions, in which they had been made to save compulsorily during their years of service. This in turn has led to a kind of political divide, with West Bengal and Tripura continuing with the old pension scheme while Kerala and Tamil du have set up committees for restoring the old scheme. However, we need to remember that when the new pension scheme was introduced on January 1, 2004 by the then NDA government, it enjoyed bipartisan support. The UPA government ected the legislation in September 2013 with the BJP’s support, while the Left Front was firmly opposed to it. The States were given the freedom to opt for NPS if they so desired.

From the litany of complaints against NPS, it appears that either the government is not clear about the share of burden that will fall on it vis-a-vis the employees, or it is not willing to be forthcoming about it presently, or that it has simply failed to communicate the fincial implications. It must be understood that the NPS is a voluntary retirement savings scheme not just for government employees and those in the organized workforce, but also for those working in unorganized sectors. Any Indian citizen of 18 to 60 years of age, including NRIs, can apply for a NPS fund account. In contrast, the older EPF Pension scheme is still for those employed in the organised sector. But there are many things going for Employees Provident Fund (EPF) — primarily, the focus on social security and its guaranteed ture — which many employees now hanker for. The returns are considered safe because 85% of EPF investments go into debt instruments, while the equity component has been capped at 15%. But there are long term worries whether the EPF, presently with around Rs 12 lakh crore corpus and 4.5 crore subscribers, can continue to pay comparatively high interest rates. While the present EPF interest rate of 8.65% is down from 8.8% earlier, chances are that it may be further cut to 8.4% in 2017-18. Why? Because, the Central government in its efforts to reduce the interest payout component of its total expenses, has been cutting the interest rates on small savings like Public Provident Fund (PPF) and Kisan Vikas Patra (KVP). Besides, debt market instruments like government bonds and fixed deposits are also giving lower returns in the ranges of 6.5% and 7.75%. So, despite EPF plus points like its guaranteed ture and government backing, the employer (not employee) paying the contribution, family pension and other benefits — there are worries over the quantum of returns from its ‘safety first’ investments, and whether the interest rate it is paying to subscribers is at all sustaible. In comparison, the NPS requires employees to pay contribution, it is not attractive on the taxation front, and it is market-linked with equity and corporate debt components alongside government bonds. While the government has tried to position NPS as a dymic and flexible scheme offering more choices and potential higher returns, clearly the message is not getting across. Because of this communication failure, workers are now complaining of being misled about the benefits of NPS. This the government needs to redress, for retired senior citizens need some certainty and security in their finces.