Why Government Employees Are Up in Arms About the New Pension Scheme (NPS)
NPS
Unlike
the old scheme, government employees are now forced to fund half of
their pension themselves. This has caused indignation and sparked
widespread protests.
On November 16, Union minister Piyush
Goyal was reportedly hounded out of an event in Lucknow by railway
employees. Among other issues, the protesters were angry about the new
pension scheme and demanded the restoration of the old system.
Not
just Uttar Pradesh, unrest against the scheme has been brewing across
the country and often manifests in mass protest demonstrations.
Forget
sustenance, several recently retired government employees say they
can’t even pay their monthly electricity bills with the pension amount.
Many
of these employees covered under the new contribution-based pension
system are receiving as little as Rs 700-800 as monthly pension while
the minimum guaranteed amount in the old defined benefit scheme is Rs
9,000. They are now required to pay 10% of their monthly wages which is
matched by the government and invested in equity shares. Retirement
pensions are dependent on the returns on that accumulated investment.
In
the old system, the entire pension amount was borne by the government
while fixed returns were guaranteed for employee contribution to the
General Provident Fund (GPF). The government pays 50% of the last drawn
salary plus dearness allowance (DA) as pension to employees after
retiring, and to their dependent family members in case of death.
What is the new pension scheme and how is it different from the old one?
The
National Pension System (NPS) is a defined contribution scheme
mandatory for all new recruits to the Central government (except armed
forces) joining on or after January 1, 2004. All state governments,
except West Bengal, have also made it mandatory.
In 2009, the
scheme was extended to all Indian citizens from 18-60 years of age,
however, the 10% government contribution is only for government
employees. An independent Pension Fund Regulatory and Development
Authority (PFRDA), set up in 2013, regulates the NPS.
The NPS has
two tiers - Tier 1 is mandatory for all government employees and has a
fixed lock-in period. Subscribers can only withdraw the accumulated
wealth after they retire, i.e., are 60 years old. A recent amendment
allows them to withdraw 25% of the employee contribution in case of
emergencies.
Even at the time of retirement, subscribers can
withdraw only 60% of the total amount, which is taxable, and it’s
mandatory to invest the rest 40% to buy a lifelong annuity scheme
through an IRDA-regulated insurance company. If they leave the scheme or
retire before attaining the age of 60, 80% of the pension wealth has to
be invested in the annuity scheme.
Tier 2 is a voluntary account,
more of a substitute for the GPF where one can withdraw any amount at
any time. The government does not contribute anything in the tier 2
account.
Unlike the pension and GPF in the old scheme, the NPS does not guarantee any fixed returns as it is market-linked.
Teething troubles or discriminatory by design?
Since
the NPS covers employees recruited after December 2003 and the age of
retirement is 60, most employees are yet to avail the new pension
benefits.
On being asked why they were protesting more than a
decade after the old scheme was replaced, the employees say they
initially had little understanding of the scheme as there were no active
efforts to educate them or raise awareness about it.
They were
told that NPS was better as the government was also matching their
contributions. “Many employees have been protesting from the start but
NPS was forced on us nevertheless. Such large-scale movements take time.
We were fewer in number and it took time to organise,” Manjeet Singh
Patel, Delhi state president of the National Movement for Old Pension
Scheme (NMOPS)
Many experts and supporters of the scheme argue
that just like a standard Systematic Investment Plan, long-term capital
gains under NPS would be better than before. However, protesting
employees argue that for those retiring after 10-12 years under NPS, the
accumulated wealth is too less to provide substantial amount as
pensions.
“The total accumulated wealth in my NPS account on
retirement was Rs 3.25 lakhs even when I got 13% interest rate on it.
After 60% of it was paid to me on retirement, I am receiving less than
Rs 700 every month as pension through the annuity scheme,” R.P. Bhatia, a
former employee of the Haryana electricity board, told The Wire.
Bhatia
was made permanent in November 2006 and retired in 2013. NPS was
enforced in Haryana from 2006 itself. He says his colleagues who were
recruited not long before him are receiving over Rs 15,000 as pension
under the old scheme.
To be sure, employees did not need to
contribute anything to avail pension in the earlier scheme. Under NPS,
employees have to fund half of their pension themselves.
If they
want a GPF-like option where there's no strict lock-in period, they have
to additionally deposit money in the tier 2 account. They say this
leaves them with less disposable income and even then, they live in
constant anxiety of losing their money in the equity market.
"If
the government wanted to encourage us to invest in mutual funds, we
should have been educated about it and it should be optional for those
willing to risk it. The government is forcing us into it instead of
providing a safety net," Patel added.
In addition to these issues,
government employees from many parts of Uttar Pradesh allege their
contribution hasn’t even started being deducted from their salaries.
“How will we get returns from the market when our money hasn’t even been
deducted from our accounts to be invested,” Ajit Verma, a 32-year-old
government employee from Lakhimpur Kheri in UP, told The Wire. He adds
that this is the case in many blocks of his district.
Speculative benefits instead of safety net
"The
minimum pension amount under the old scheme is Rs 9,000 which has been
calculated keeping in mind entry-level minimum wages. Real pension
amounts are much higher as nobody retires on entry-level wages. In the
new scheme, even those who have worked for a decade are getting as
little as Rs 1,000-2,000. This is a disastrous policy," Tapan Sen,
general secretary, Center of Indian Trade Unions, told The Wire.
Sen
also alleges that both the Congress and BJP governments, through this
scheme, have been using public money to help those who profit through
speculation in the share market at the cost of vulnerable government
employees.
In addition to nervousness because of a mistrust in
market-linked schemes, the employees also feel they are being
discriminated against as armed forces recruits are still covered under
the old scheme and they feel their fellow colleagues covered under the
old scheme are getting a better deal.
Clearly defined pension
amounts and a safety net in the form of fixed interest rates on GPF were
the main attractions for a government job for these employees who
typically spend their whole working lives in the public sector.
Current state of economy adding to woes
The
current state of the economy does nothing to inspire confidence in
these employees as they see their interest rates dip in the aftermath of
events like demonetisation and Goods and Services Tax.
"We were
told that our money in the market would also help avoid a 2008-like
economic slowdown. How are we to trust this logic when people like Vijay
Mallya and Nirav Modi run away with thousands of crores of public
money? When even our pension fund managers like SBI goes into massive
losses?" Vijay Kumar, national president of the NMOPS, told The Wire.
A rare moment of unity among government employees
As
word spreads of an organised movement against the new pension scheme,
employees from various government departments and states are joining in.
Leaders of the movement say this is one of the rare issues that has
united government employees from very diverse sectors and geographical
locations.
Workers from the banking sector are also lending their
voice to the protest. A charter of demands submitted to the Indian
Banks’ Association by the All India Bank Officers’ Confederation also
demands scrapping of the NPS.
"Either we go to the old scheme or
this scheme can itself be converted into an assured pension scheme. We
have also given a workaround on how it can be done. If invested
properly, it is possible to guarantee assured income. Instead of
investing in the market, the fund can be used in lending activities.
Retail lending can alone fetch 12-15% interest and we can avoid the
whims of the market," Thomas Franco, former general secretary of AIBOC,
told The Wire. Even while suggesting how to ease anxieties regarding
market volatility, Franco’s preference remains going back to the old
scheme.
Since no concrete action was taken to address their
concerns even after multiple appeals to all concerned authorities, the
NMOPS has planned to mobilise lakhs of government employees from across
India and march to the parliament on Monday.
Source:thewire.in
