NATIONAL PENSION SYSTEM (NPS)
AND FUTURE OF PENSION IN THE NEO-LIBERAL ERA.
Ex-Secretary General, NFPE &
Confederation of Central Govt. Employees & Workers
(Paper presented in the National Webinar organised by AIPRPA
Fourth Central Pay Commission headed by the Retired Justice of Supreme Court of India Shri. Ashok Singhal, made the following observations regarding pension in para 2.13 of Part-II of its report:
“The concept of pension, however old in its origin, had the latent and real desire to provide for an eventuality - known and unknown. The known eventuality was old age and probable reduction in earning power, while unknown eventuality was disability by decease or accident or death. It’s real purpose was security, social security. Eventhough the beginning was oblique, indiscernible and faint, but the germ of an effort to provide security ran through the provision and it is natural that it should have grown and flowered with the development of human understanding and desire to look after and provide for those who deserve it, for, man has constantly been seeking means by which to enhance his economic security.”
Payment of pension to Government employees started in Europe for the first time in Nineteenth Century. It’s genesis can be traced to the first Act of Parliament in United Kingdom (Britain) in1810, to be concerned with the provision of pension generally in Public Offices. The Act which substantively devoted itself exclusively to the problem of Superannuation pension was passed in 1834, called Superannuation Act 1834. These are landmarks in pension history because they attempted for the first time to establish a comprehensive and uniform scheme for all, whom we may call civil servants. In England, the basic social security pension was introduced from the year 1946. In USA the pension was first introduced as a social security scheme. It was thereafter, that the Civil services retirement pension system was introduced in USA in 1920. In fact, social security in old age commended itself in earlier stages as a moral concept, but in the course of time it required legal connotation.
In India the first pensioner’s Act was introduced in 1871. Under the Pensioners Act 1871, enacted during the British Regime, Pension is a bounty given as a matter of grace, depending on the sweet will of the employer and was to be paid by the Collector or the Deputy Commissioner or other authorised officer. Initially this class of Pension appears to have been introduced as a reward for loyal service.
In the course of transformation of society from feudal to welfare state and as socialistic thinking acquired responsibility, states obligation to provide security in old age, an escape from undeserved want, was recognised and as a first step, pension was treated not only as a reward for past service, but with a view to helping the employee to avoid destitution in old age. The quid-pro-quo was that when the employee was physically and mentally alert, he/she has rendered unto the master the best, expecting the master to look after him in the fall of life.
After Independence of our country, just like every citizen of our country, Pensioners also expected positive changes in the attitude of the National Government towards, the issues of pensioners and improvement in the Pension structure. But nothing of that sort happened. Instead, the very same attitude of the British Government was followed and pensioners became a neglected lot, a category of unwanted people, a non-productive financial burden, a head-ache to the Government. Once an employee retires from service, the nexus between him and the Government was broken. Problems of pensioners were being placed at the lowest position in the priority list, instead of seriously considering them on top priority basis. The Government mostly remained adamant, refused to budge, turned a deaf ear to the problems of pensioners. In the 1st, 2nd and 3rd Central Pay Commission’s terms of reference, revision of pension structure and other pensionary benefits of the Central Government employees was not included. Poor Pensioners could not ventilate their grievances and they could not demonstrate as there was no organised movement of pensioners at that time. Most of the poor pensioners prayed to the God to improve their lot.
Inspite of acknowledging the right to pension in Article 366(17) of the Constitution of India, in reality no preference was given to pensioner’s till 1982. 1982 became a turning point in the history of Pensioners in India. It is in that year, Honourable Supreme Court of India upheld the right to Pension. The historic judgement in the Nakara case, which is called the magna carta of pensioners, was delivered on 17-12-1982 by the five member constitution bench of the Hon’. Supreme Court of India. I am not going into the details of the Judgement, as my collegue Com: K.Raghavendran has already dealt in detail, the important aspects of the judgement.
It is at that time, in 1983, Central Government appointed 4th Central Pay Commission. Inspired by the historic judgement, Pensioners Associations, big and small, sprang up at all important cities of the country. The National Council, Staff side of the Joint Consultative Machinery, of the Central Government serving employees also siezed of the importance of the judgement. Just like 1st, 2nd & 3rd Central Pay Commissions in the terms of reference of the 4th Central Pay Commission also, there was no mention about revision of pension and other pensionery benefits of Central Government employees. Combined demand of National Council (JCM) staff side and the Pensioners organisations compelled the Government to amend the terms of reference of 4th CPC and the following item was also incorporated in the terms of reference.
“to examine the existing pension structure including DCRG and making recommendations which may be desirable and feasible”.
Fifth Central Pay Commission headed by Retired Supreme Court Justice (Shri) S.Ratnavel Pandian made the following observation regarding pension.
“Pension is their deferred wage. Pension is their statutory, inalienable and legally enforceable right and it had been earned by the sweat of their brow”.
In the year 1971, the Hon’ble Supreme Court of India while disposing the case pertaining to Deokinandan Prasad Vs. State of Bihar, declared that pension is a property under Article 31(1) of the Constitution and by a mere Executive order, the state had no power to withhold the same.
Fourth Central Pay Commission in para 2.3 of the Part-II Report, reiterated as follows:-
“Pension is not by way of charity or an ex-gratia payment, or a purely social welfare measure, but may fairly be said to be in the nature of a “right” which is enforceable by law”.
As already mentioned consequent on pronouncement of Nakara Judgement by the Hon’ble Supreme Court of India, the Government was compelled to include the clause regarding revision of pension and pensionary benefits, in the terms of reference of 4th and 5th Central Pay Commission. But when it came to 6th Central Pay Commission, the terms of reference was modified as follows:
“To examine the principles which should govern the structure of pension to the present and former Central Govt. Employees appointed before 1st January 2004.”
Thus the revision of pension and pensionary benefits of Central Govt. Employees appointed after 01-01-2004, was completely excluded from the purview of 6th Pay Commission.
The reason for this change is that the Govt. of India has introduced a New Contributory Pension Scheme for the Central Govt. employees who joined service on or after 01-01-2004.
Pension Refeorms in India and New Contributory Pension Scheme (NPS):
Consequent on implementation of neo-liberal globalisation policies in 1980s, Pension privatisation offensives has engulfed the workers and employees almost all over the world. Govt. of India also faithfully followed the international dictates of the world capitalism. Union Finance Minister of the erstwhile BJP Govt. ie. A.B.Vajpayee Government in its budget speech 2001-02 envisaged a new Pension Scheme based on defined contribution instead of defined benefit, to new entrants entering Government service. As a sequel to the above announcement a High Level Expert Group was constituted on 25th June 2001 to review the existing pension scheme and provide roadmap for introducing a new pension system based on defined contributions. Based on the recommendations of this committee called “Bhattacharyya Committee on pension reforms”, the BJP Govt. issued an order on 17-12-2003, under the title “New Pension for those appointed on or after 01-01-2004”. Government of India promulgated an ordinance on New Pension Scheme (NPS) on 4th December 2004 to give legislative sanction to the order. Most of the State Government in India also followed the suit. Govt’s repeated attempt to pass an Act in parliament could not succeed due to stiff opposition of left parties who supported the then UPA Government in power. Finally when a Government without the support of Left Parties came to power the Pension Fund Regulatory and Development Authority Act (PFRDA Act) was passed in the Parliament on 2013 September 18th.
Political and Economic background of the New Pension System (NPS). The concept of privatized and individual pension account and Private Fund Managers arose in the mid-eighties in Europe and United States, when the economy of these countries, suffered from a serious recessionary situation. In Europe, the Government and Corporate sector thought of this change in concept and implementation of Pension reforms largely by promoting a gradual switch over for providing “Pensions” through funded schemes - ie; from defined benefit to defined contribution, either managed by or on behalf of employing companies (known in Britain as occupational pension scheme) or else on an individual basis (Personal pensions).
Official propaganda sought to justify this to the public on the grounds that the cost of tax payers on the state funded schemes is no longer affordable and the pension fund scheme can provide finance for productive investment and economic regeneration. The idea was that this private individual finance, collected as pension contribution from the employees, when invested will boost ,the declining share market and help economic revival. In fact, the impetus behind the switch over towards funded pension schemes came from politically powerful vested interests in the financial sector (ie. corporates) who were anxious to strengthen and perpetuate the importance and profitability of their own “industry”, thereby also increase the size of the “wall of money” which helps to prop up the market value of their financial securities and other assets.
Naturally, those who also promote such increasing flows of funds into financial markets (share markets) did not care to dwell on the likelihood that supply of funds may be rapidly out-stripping the demand, and that there is consequent risk of serious losses to investors (here in the case of Pension fund investors are employees) and the collapse of the financial institutions. In reality, any benefit supposed to depend on the vagaries of share market is always vulnerable to total ruin. This happened during 2008 world recession.
At the beginning of 1980’s, the International Monetory Fund (IMF) and World Bank, seriously took up the cause of privatised Pension Scheme and consequent Pension Funds and burnt mid-night oil to make a number of studies and set up various working groups. Publishing of the India specific report released by World Bank in April 2001 titled - “India - Challenge of old age income security” was followed by another report ‘ “IMF working paper on Pension reforms in India” published in September 2001. The reports clearly stated that Pension obligation (ie. obligation of the Government to pay pension as per the Pension Rules) or promise ,made by the Government, which has potential on exerting pressure on Government finance, has been the focuss in assessing medium to long-term fiscal sustainability. In tune with the above neo-liberal dictates of the IMF and World Bank, in the 2001-2002 Budget spech of Finance Minister of then BJP Government made the observations the Central Govt.’s Pension liability has reached unsustainable proportions and hence it is high time that a new contributory pension scheme is introduced for the Government servants entering the Central Government services.
It is quite clear that what the Government of India was trying to do by introducing the so called “New Pension Scheme” was nothing but faithfully following the pro-corporate pension reforms in toto and thus it is a part of the imperialist globalisastion in the interest of big capitalists and Multi National Companies and it has nothing to do with the welfare of the employees or pensioners or any individual or even Government finances.
Parliamentary Standing Committee on Finance (2010-2011) of 15th Lok Sabha of Ministry of Finance headed by shri. Yaswanth Sinha in its 14th Report on PFRDA Bill, has made the following observations - Para 44 - “The Committee, deeply concerned about the uncertainty of returns on the funds of the subscribers, are dismayed at the casual approach of the Government as reflected in clause 20(g), wherein the hapless subscribers have no implicit or explicit assurance of benefits, except market based guaranteed returns mechanism, neither tried or tested. As any effective pension scheme needs to be underpinned by stability of returns and reasonable post retirement incomes, it is imperative that Government should provide for minimum guaranteed returns, and not mere camouflage of market based guarantee, which should not be less than the minimum returns available currently under ,the defined benefit pension scheme. The Committee therefore, desire that the Government must divise a mechanism to enable subscribers of NPS to be ensured of such a minimum assured/guaranteed returns for their pensioners, so that they are not put to any disadvantage vis-a-vis other pensioners and thus going a long way in creating a sense of security amongst the employees that not only would their capital be safe but they would also be getting stable returns on the same. The Committee, therefore, recommended that clause 20 (2)(g) of the Bill be altered accordingly”.
Neither the Government has taken any action to guarantee Minimum Pension as recommended by Parliamentary Standing Committee, nor it has introduced a minimum assured returns scheme as provided in sub-section 2(d) of section 20 of PFRDA Act 2013.
The Audit Report dated 4th August 2020 on National Pension System by the Comptroller and Auditor General of India (C&AG) in Para 3.7 of its report made the following observations/recommendations -
“As per PFRDA Act 2013, vide sub section 2(d) under Section 20, the subscriber seeking minimum assured returns shall have the option to invest his funds in such schemes providing minimum assured returns as may be notified by the Authority. Even after a lapse of more than 15 years since introduction of the NPS, the subscribers were yet to receive such minimum assurance. Immediate steps need to be taken for providing Minimum Assured Returns Scheme (MARS) in compliance to the provisions of the PFRDA Act, to the subscriber for ensuring their social security post retirement”.
As per the C&AG Audit report dated 4th August, 2020, as on 31st March 2018, there are 58.01 lakhs Government sector subscribers including 17,58,144 Central Government employees, 31,63,415 State Government employees, 1,70,856 Central Autonomous body employees and 7,08,585 State Autonomous body employees. The pension of these 58 lakhs employees is not guaranteed and hence they are living in a State of uncertainty about their futurte. Further they are not eligible for family pension after death on retirement, Dearness relief, Additional pension inspite of the fact that they are paying 10% of their salary every month including Dearness Allowance towards New Pension Scheme. They are also not eligible for pension revision through Pay Commissions.
At the same time Corporates and Multi National Companies are happy because as per the C&AG Audit report dated 4th August 2020, the total Asset Under Management (AUM) in NPS amounted to 3,99,245 crores as on 31st January 2020 with 3,41,815.87 crores pertaining to Government Sector. (Central and State Government employees).
Employees and Pensioners under Old Pension scheme (OPS) are also not safe:
Clause 12(5) of PFRDA Act is reads as follows:
“Notwithstanding anything contained in clause (c) of sub section (3), the Central Govt. may, by notification extend the application of this Act to any other pension scheme (including any other pension scheme exempted and notified ,under clause (c) of Sub section (3)”. That means no seperate Act is to be passed in Parliament for this purpose.
The Central Govt. has made an attempt in this regard, through 6th Central Pay Commission appointed in 2004, ie. immediately after the introduction of New Pension Scheme from 01-01-2004.
As mandated by Government, the 6th Central Pay Commission chaired by Rtd. Justice Sreekrishna has appointed Centre for Economic Study and Policy, Institute for Social and Economic Change (ISEC), Bangalore to suggest various options for suitable self-sustaining models to finance the pensions of Central Government employees with the final objective that funds so devised are able to meet substantially the entire pension liability of the Government ie; pension liability of employees and pensioners coming under the Old Pension Scheme (OPS) and to assess the financial liability that will need to be initially incurred by the Government for implementation of such self-sustaining models.
The Committee made the following recommendations -
“In case, the Government want to create a pension fund to discharge their entire pension liability (ie; the pension liability of Central Government employees and Pensioners coming under old Pension Scheme), the study by the Institute of Scoial and Economic Change (ISEC) reveals that the net present value of the projected pension liability is Rs.3,35,628 Crores; based on an assumed rate of return of 8 percent. A fund of this magnitude will help the Government to meet the pension payments from the returns of the fund and help avoid earmarking resources on an annual basis for the mounting pension outgo that takes place on account of Pay As You Go System (ie. old Pension System) that currently happens in each budget.”
Government has neither accepted this recommendation of 2006 of 6th Central Pay Commission nor rejected it. As ,the number of Old Pension Scheme pensioners and Old Pension Scheme Central Govt. employees are coming down every year, the Government may consider the proposal at the appropriate time. Thus, it may be seen that the chances of converting the existing OPS pensioners and OPS Central Government employees into pensioners getting pension from Pension fund is still hanging over their head ,as a democleus sword. Suppose the pensioners and employees coming munder the purview of Old Pension Scheme are brought under a Funded Pension Scheme, as explained earlier, by a Gazette notification by the Government, they will be governed by clauses and rules of PFRDA Act. Their pension will be from Pension fund. The amount of pension will depend upon the vagaries of share market. If Pension Fund collapse, there is no guarantee that they will get pension. Further, they will not be eligible for Dearness Relief, additional pension on attaining the age of 80 years, family pension if death takes place after retirement, pension revision based on the recommendations of Pay Commissions.
What shall we do and how we can overcome this situation?
There is no short cut before the Central Government employees and Central Government Pensioners, both NPS and OPS, to overcome this situation. Our social security is in danger. We have to mobilise and fight against these neo-liberal pension reforms. We should build up a mass movement. We should learn lessons from the farmers of India. Immediately on passing the farms reforms Acts, they spontaneously reacted. It is high time to organise, similar type of movement against NPS. Our one and the only demand should be “Scrap NPS and restore OPS” (ie; Scrap National Pension System mand restore Old Pension System). If 32 lakhs Central Government Employees and 33 lakhs Central Government Pensioners rally behind the demand and come to the street, no Government can ignore it. Along with the Central Government Employees and Pensioners, if we succeed in making the State Government employees and State Government Pensioner and Autonomous body employees and Pensioners, numbering about 150 lakhs also join the movement, it will become a force of about more than two crores in numbers and the Government will be compelled to Scrap NPS and restore OPS. Let us work together for such a mass movement of Employees & Pensioners. It is not impossible. If farmers can do it, we can also do.