The demand for a 'sarkari naukri' could be well understood when as many as 1.9 crore candidates—including PhDs, engineers and management degree holders—applied for 62,900 lowest level vacancies advertised by the Indian Railways in November 2018. A more-generous-than-market wages, host of benefits including housing are still the main draw for government jobs. However, the most lucrative aspect of all is receiving a government pension at the end of it.
Lately though, the pension scheme has become a cause of serious concern for a majority of the 2.15 crore government employees in the country. Till 2004, all was well as long as the old pension scheme for government employees or Government Pension Scheme (GPS) was alive. The New Pension Scheme (NPS) was introduced by the NDA government in 2004 with an intention to curtail the ever-rising pension bill caused by the GPS prevalent among central and state government employees. This view was then supported and carried forward by the UPA government.
The transition to the New Pension Scheme, however, was not very simple. For starters, the rules for the new scheme just did not get finalised for the next ten years. In the interim period, the scheme was run through ordinance's renewed every six months. Finally in 2014, the Pension Funds Regulatory Development Authority (PFRDA) Act was ratified by parliament under the UPA rule. This caused a web of confusions among employees who joined government services prior to 2004. The transition from GPS to NPS led to several litigations at labour courts.
The scheme itself, which had more rigorous rules for withdrawal, over the GPS changed its name along with its structure a couple of times. So, what started off in 2004 as New Pension Scheme System, soon became National Pension Scheme and later to National Pension System. Its acronym, NPS, was retained for identification's sake. Meanwhile, the pension scheme went on to cover about 1.25 crore subscribers and currently has over Rs 3,148 billion of assets under management.
Of this, about 63.4 lakh NPS subscribers are in government services (Centre - 19.9 lakh, states - 43.5 lakh) and contribute Rs 2,060 billion (Rs 206,189 crore) or 85 per cent of NPS’ corpus. The remaining 61.4 lakh subscribers, who are from private sector, NPS-Lite (now Swavalamban Scheme) and Atal Pension Yojana (APY), add up to just 15 per cent of the NPS’ total contribution received of Rs 243,537 crore (Rs 2,435 billion).
A bulk of the government pensioners, however, are not happy with the new scheme. Pension under the old scheme was not based on employee or government contribution. It would be paid directly by government from its funds. Under NPS, though the level of pension received is dependent on the size of the corpus of a government employee rather than their last basic pay. Another scheme Government Provident Fund (GPF), in which employees make a contribution, would earn 7.5 per cent annualised returns, which would often be higher than bank deposit rates at the time.
“In comparison, the NPS is currently earning about 9 per cent returns on our corpus,” said Manjeet Singh Patel, a central government employee and the Delhi state president of National Movement for Old Pension Scheme. “But the problem with NPS is that this higher return is only on paper. It never materialises for the pensioner,” Patel adds, explaining why more than two million government employees have joined this movement demanding return of the old scheme. After prolonged protests by employees, the current NPS scheme now allows for emergency withdrawals of up to 25 per cent of the employee’s contribution, thrice in lifetime. However, in the GPF, emergency withdrawal could include the entire pension corpus inclusive of interest earned on the total corpus.
At the end of the service period, the NPS allows pensioners to withdraw up to 60 per cent of their total corpus. The remaining 40 per cent are left to purchase annuities which can provide the employee a pension amount for the rest of his life. In the old scheme, an employee was allowed to withdraw his full contribution and returns accrued on it, leaving just the government contribution in the fund to earn a pension.
Government employees claim that the scheme takes away their minimum pension guarantee, which was earlier offered under the old scheme at Rs 9,000 per month (for grade-3&4 government employees). Whereas under the current scheme, government employees are receiving a minimum pension of Rs 900 to Rs 2,000 per month. The old scheme offered government employees the security of receiving up to 50 per cent of their last drawn basic as pension.
Another bone of contention regarding NPS is the family pension. The older pension scheme allowed families of deceased government employees to continue receiving the pension even after. “Even after 14 years, the government is yet to finalise rules on how the family pension can be given under NPS. The current rule as it stands states that the bereaved family must give up any claims on the pension corpus in order to be eligible to receive the family pension. This is an outright wrong. Why should the government take possession of our savings on our death?” asks Vijay Bandhu, the national president of the NMOPS agitation. Government allowed family pension under NPS in 2016 after continued protests from its employees.
In NPS, contribution of employee is capped at just 10 per cent of basic as was the cap on government contribution of the same amount. It was after months of prolonged agitation, which saw lakhs of government employees troop down to the national capital, to demand higher contribution from them towards employee’s pensions. Under pressure from agitations held in November, December and January, the finance ministry instead allowed a hike in government contribution only to 14 per cent, to be in effect from April this year.
“We are demanding that government should open up our contribution and invest it only in the older pension scheme. Whatever government wants to pay us as pension, it can invest in any scheme, the NPS or the old scheme. We have no problem even if it is 10 per cent,” said Patel, who claims that the agitation will continue even after the government announcement for a higher contribution in NPS for its employees. Patel says that this demand for the revival of the old pension scheme is primarily because market-linked returns from invested equity assets under NPS are uncertain.
Government employees say that they witnessed 15-20 per cent depreciation of their corpus in a day, as displayed against their Permanent Retirement Account Number (PRAN), while the demonetisation and GST roll out were being implemented and stock bourses were in doldrums. Even now, many are on the tenterhooks as sizeable portions from the NPS corpus was said to be invested by fund managers in troubled companies like IL&FS and others. “The NPS scheme says that 15 per cent of our corpus would be invested in equity assets by fund managers. But in reality, no one can put a finger on that and say which is how much, based on the cumulative returns we are displayed,” said Patel.
Interestingly, amid all this clamour for bringing back the old pension scheme by employees, the more attractive GPS is still continuing. The pension rules of the government, in fact, makes a clear distinction between the 55 lakh or so common government employees and about 32 lakh government servants engaged in the judiciary, the three armed forces and for those in the political administration, like for Members of Parliament, Members of Legislative Assembly, Councillors and Members of Legislative Council in states.
“It is interesting to note that a politician may have remained a MLA first and then MP and later minister. In such scenarios, they are entitled to draw three pensions under the old scheme. We do not think this is fair and want to ask who is paying for the pensions of politicians,” said Sanjeev Gaderia, a retired doctor from Himachal Pradesh, who contested from the Kangra constituency this time on the issue of revival of government’s old pension scheme.
The NPS is also applicable for bank employees. Employees in various states have objected once their pension was shifted to the NPS. In Kerala, employees of the State Bank of Travancore and State Bank of India recently got the High Court nod to roll back pension under NPS, as introduced by these banks. In certain states like West Bengal, the NPS scheme was not introduced after stiff resistance from state employees. In many other states like Maharashtra, Chhattisgarh, Andhra Pradesh, Telengana, Uttar Pradesh, Punjab, and Himachal Pradesh, a rethink on the NPS is ongoing. State government committees have been formed to review the viability of the old pension scheme over NPS for their employees.
The concerns over the NPS, however, were not shared by any of the fund managers of the scheme. Among the fund managers are SBI Pension Fund, LIC Pension Fund, Birla Sunlife Pension Management Ltd, HDFC Pension Management Co. Ltd, Reliance Capital Pension Funds Ltd, UTI Retirement Solutions Ltd, ICICI Prudential Pension Funds Management Co. Ltd and Kotak Mahindra Pension Fund Ltd.
“The scheme is seeing an increase in subscriber base from the corporate sector. After withdrawals and future annuity were exempt from Income Tax, and provisions for 25 per cent withdrawal from the scheme in emergency were just allowed, we expect to see a much better response for NPS products,” said an official with SBI Pension Fund Ltd, the largest among the eight fund managers. Recently, SBI has received Rs 18,800 crore worth of subscription under the Corporate CG plan of NPS. “There could be some problems with the scheme. But then which investment instrument available in the market is perfect?” asked the official who declined to be named. According to him, the NPS scheme is offering a “sustainable solution to the pension problem”.
Another fund manager HDFC Pension Management Ltd see the NPS to have delivered better pension returns to government employees over GPF pension. “Our fund management charges (0.5 per cent in NPS compared to 1 per cent to 1.5 per cent for other annuity products) are the lowest. This has a huge impact for long term investments,” said Ashish Narula, chief investment officer, HDFC Pension Management. “Initially, the scheme did not find that much traction outside government service holders. But now with the additional Rs 50,000 in tax break, many more are drawn to the scheme,” said Narula.
Despite the optimism among the fund managers, who are convinced of the ‘good job’ they are doing with NPS, the government seems to have its own worries. On top of this list is to ensure that pension funds adhere to stricter investment diligence. Following the collapse of a number of listed financial institutions like IL&FS, DHFL and others, established businesses pension funds have lost money. Secondly, addressing a growing pressure about large number of complaints regarding NPS.
The finance ministry’s department of financial services deals with pension reforms and guides the pension regulator PFRDA in policymaking and objective setting. To understand the government’s compulsions in regulating benefits under NPS to subscribers and to understand if the scheme had helped curtail its expenditure on pension, THE WEEK send a questionnaire of six questions to the finance ministry. But no formal response to our queries has been received yet.
Madnesh Kumar Mishra, joint secretary in department of financial services, who heads the government’s pension reform initiatives, said he received our queries but was unable to attend to them because of his ‘work pressure’. “Many of the things you asked have been already addressed or will be soon addressed. Some work is also going on about bringing back a defined benefit pension plan like the old pension scheme. But a lot more work is still needed in that direction,” said Mishra.
The pension regulator PFRDA, that administers the NPS, had also initiated the process of rethinking on NPS to make it more attractive and secure. However, following the retirement of its last chairman Hemant G. Contractor in April, all progressive plans for NPS are on temporary hold. “From this June, the entire 60 per cent corpus withdrawal from NPS would be made tax free. This is currently applicable on 40 per cent withdrawals from the corpus,” said Supratim Bandhopadhyay, member (finance) and one of the two wholetime members of the pension regulator.
He claimed that the NPS investments had performed very well in the last 10 years. Cumulative returns on various investment classes like equity, corporate bond, government bond, have seen average annual returns ranging between 8.87 per cent to 11.46 per cent. “This is far better than anyone else. This is because our fund managers already adhere to very strict guidelines for making investments,” said Bandopadhyay.
When asked about the discrimination in administering government pension via the NPS and the GPF, Bandhopadhyay claimed that the PFRDA had no hand and has no knowledge as to why this was done. “The original circular from the finance ministry in December 2003 had created this distinction. We only followed that,” he said. On the question of sacrificing the entire corpus to be eligible to receive pension fund after the death of a government employee, Bandhopadhyay said that employees should check what would be more beneficial for them.
“If the service tenure was less than 10 years then it would be prudent to surrender the corpus. In other cases survivors would have to take a call based on the number of years served,” said the PFRDA board member. Bandhopadhyay also said that the breakup of return from different investments under the NPS by a fund manager is available on online resources. “Stating the consolidated return gives us some operational ease you can say. We can also give the asset class-wise returns breakup in monthly statements,” he said.
According to him, the NPS have been making payout from its own accruals so far and had never had to sell investments to make payouts.
Bandhopadhyay also told THE WEEK that the PFRDA had initiated studies looking at a minimum return on pension contributions after instructions from the finance ministry. “The Minimum Assured Return Scheme is being discussed. Any further progress on this will depend on the new government now. In the meantime, NPS is working very well and offering more flexibility to subscribers,” he said.
But government employees are not convinced and to them what matters the most is simplicity. “A grade 3 or grade 4 employee hardly understands the share market or difference between equity, government bond or a corporate bond. We also have little choice on what investment plan to chose. Most of us are in the default plan and can have no say over changing the plan,” said Manjeet Patel. According to him, simplicity would be the government’s best bet. Prior to the parliamentary polls more than 50 MPs from the Congress, Samajwadi Party, left parties and others had supported the demand to abolish NPS and bring back the GPS. It now remains to be seen if the new government at the Centre could bring back the lost status of government job holders.