With effect from Monday, the State Government replaced the ‘defined benefit based’ pension scheme for its employees by the ‘defined contribution based’ pension scheme.
The cost savings for the Government, if any, will accrue only from the date of retirement of the first employee who joins after March 31.
BROAD AGREEMENT
Till such time, there will be an additional outgo to the extent of the employer’s contribution to the fund in respect of employees joining service from April1, 2013.
Meanwhile, there has been broad understanding between the Government and employees on the following:
Contributory pension scheme will be applicable only to employees joining service from April 1, 2013. There will be arrangements to look into the problems that arise on its implementation.
Problems of employees with low emoluments and short service period will be examined. A Parliamentary Standing Committee has recommended guarantee of minimum pension to be not less than that eligible under EPF pension scheme.
WESTERN MODEL
When Central regulations are in place, there will be a provision to guarantee the minimum pension.
The State government will approach the Pension Fund Regulatory and Development Authority to include the State treasury deposit as an eligible avenue for depositing pension funds.
It will be clarified in the new notification that employees in service up to March 31, 2013, will be eligible for statutory pension under the existing regulations.
So what gives? Jose Sebastian, faculty in public finance, Gulati Centre for Taxation and Finance, the shift-over to contributory pension scheme can make eminent sense subject to caveats.
“If this can base itself on the Western model that seeks to provide citizens equal access to shared resources, the purpose will have been well served,” he told Business Line.
HUGE INEQUALITIES
The current pension system has created huge inequalities in the system. An additional secretary retiring today takes home a package of Rs 40,000 in monthly pension payout.
Husband and wife retiring from service in this manner, of which there are many, draw more than Rs 80,000 every month by virtue of having served the Government.
In contrast, welfare pension payment for the common man (farm worker etc) has been revised to Rs 500 after having been fixed at Rs 25 to start with many years ago.
While Rs 25 could buy 25 kg of rice those days, Rs 500 gets only 17 kg now thanks to inflation and lesser purchasing power of the rupee.
NOT SUSTAINABLE
Contributory pension scheme could make a difference by at least freeing up allocations aimed at enhanced quality of services to the common man.
Committed expenditure of the State Government for pension has ballooned to Rs 8,000 crore every year. This is not clearly sustainable.
Sebastian warned that at the current level of payouts, there would soon come a time when it would become impossible for Government to meet pension commitments.
The pressure on the system would also make it inevitable that even employees on rolls as of March 31, 2013, would move progressively under contributory pension scheme.