Govt worry on EPS: Gap in benefits & contribution, shifting demographicsPremium Story

The Indian Express | 1 week ago | 18-03-2023 | 12:45 pm

A HIGH actuarial deficit in the Employees’ Pension Scheme (EPS) reflecting the gap between the net present value (NPV) of contribution and benefits, and a progressive increase in the number of pensioners going forward, are two key concerns the Employees’ Provident Fund Organisation (EPFO) is grappling with as it attempts to implement a higher pension option for subscribers following a decision by the Supreme Court.The EPS is the social security pension scheme offered by the EPFO to organised sector workers.In its response during the proceedings in the Supreme Court last year, the EPFO had pegged the pension fund’s actuarial deficit rising to over Rs 15 lakh crore for implementation of the higher pension plan after the Kerala High Court set aside the modifications to EPS in 2014, two officials aware of the debate among those managing the Fund said.“The projected difference between the NPV of contribution and NPV of benefit is very large and it is one of the main reasons the Fund opposed it in appeals in the earlier court cases,” one of the officials cited above said. But the Supreme Court decision provided some relief to the EPFO which reduced the number of members/ pensioners who could gain from higher pension options.An official said the government is still in the process of figuring out the actuarial deficit post the Supreme Court decision. “It will be higher than what is stated in the latest annual report of the EPFO, but will definitely not be as high as Rs 15 lakh crore projected after the Kerala High Court judgement,” the official said.The total number of pensioners under EPS has more than doubled to 72.73 lakh in 2021-22 compared with 35.10 lakh in 2009-10. “In the coming years, given India’s demographic dividend, the inflows to the pension fund of the EPS are expected to be high given the addition to its membership. But when this progressively tapers off, the number of pensioners will be disproportionate to the number of existing members or new entrants. This is when the problem will kick in,” said another official in the government.According to Report of the Technical Group on Population Projections for India and States 2011-2036, 73.5 crore people or 60.7 per cent of India’s population was in the working age group — 15-59 years —in 2011 and this population group is expected to increase to 98.85 crore in 2036. While the working age population is likely to then taper off, due to increasing longevity, India’s population in the age group of 60 years and above is projected to increase from 10.15 crore in 2011 to 22.74 crore in 2036.In the Supreme Court, the EPFO is learnt to have cited an actual calculation of 21,000 pensioners, detailing the difference between their contributions and upfront payment of pension arrears to be over Rs 250 crore. In addition, their monthly pension had risen by more than three times to almost Rs 15 crore.In a defined benefit scheme, the actuarial deficit is the difference between the fund’s assets and the present value of its liabilities (future payment obligations) under a particular set of valuation assumptions. The EPS – though described by the EPFO as a defined contribution and defined benefit scheme – is a scheme tilted more in favour of defined benefits than defined contributions.The issue of the projected actuarial deficit for the EPS was flagged in the latest annual report of EPFO for 2021-22, which stated that under EPS, given the increase in the number of pensioners, the amount disbursed as pension has shown a steady increase over the years even though “the Fund has consistently had more receipts than payment outgo” since its inception. “However, the Fund has not witnessed any cash flow problems till now, in spite of there being a projected actuarial deficit in the valuation of the Fund,” it noted.As per the EPFO report’s combined valuation results as on March 31, 2016 and March 31, 2017, the net liability of the pension fund had stood at Rs 15,531.91 crore as against a surplus of Rs 5,026.87 crore as on March 31, 2015. The net liability for the preceding year as on March 31, 2014 was Rs 7,832.74 crore.The value of the pension fund corpus stood at Rs 3.18 lakh crore as per the combined report for 2016 and 2017, while the present value of future contribution stood Rs 4.04 lakh crore. This sums up to Rs 7.22 lakh crore, which when seen against the present value of benefits of Rs 7.38 lakh crore, resulted in a net liability of Rs 15,531.91 crore.A detailed query sent to the EPFO by The Indian Express on this issue remained unanswered.Trade unions have flagged concerns about the link provided by the EPFO to exercise the option for higher pension, stating it first asks whether the subscriber had opted for higher pension benefit while joining the EPS-95 scheme, which most had not opted for and thus, the link is programmed to deny the benefits of the Supreme Court ruling to the eligible pensioners.The actuarial deficit, or the difference between the net present value of benefits and contributions of all members, may be manageable now, but is expected to rise sharply in coming decades as the number of pensioners swell. The government is keen to ensure this does not jeopardise social security for low wage earners.In a series of letters to the EPFO earlier this month, the Centre of Indian Trade Unions (CITU) had also raised doubts on the disclaimers put out on the portal. In its letter, it mentioned how the subscribers opting for the higher pension benefit have to undertake a declaration empowering the Central government to amend the scheme “as it may deem fit”.“As such, the pension calculation formula has already been specified/defined in the Scheme…then why is such a disclaimer inserted?” the letter said. Some pensioners have also filed review petitions in various state high courts.The EPFO has extended the deadline to opt for higher pension to May 3 from the March deadline earlier. The Supreme Court in a ruling on November 4 had upheld the amendments to the Employees’ Pension (Amendment) Scheme, 2014, implying another chance for employees who were existing EPS members as on September 1, 2014 to contribute up to 8.33 per cent of their ‘actual’ salaries — as against 8.33 per cent of the pensionable salary capped at Rs 15,000 a month — towards pension.The EPS provides employees with pension after the age of 58, if they have rendered at least 10 years of service and retired at age 58. The monthly pension is computed based on this formula: Monthly pension = pensionable salary x pensionable service / 70, on a pro-rata basis linked to maximum monthly pensionable salary of Rs 6,500 for pensionable service up to September 1, 2014 and Rs 15,000 thereafter.

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For pension panel, a red line: Turning clock back on reformsPremium Story

The Indian Express | 1 day ago | 28-03-2023 | 12:45 pm

The Indian Express

1 day ago | 28-03-2023 | 12:45 pm

THE committee under Finance Secretary TV Somanathan, announced by Finance Minister Nirmala Sitharaman last week, to relook at pension may not recommend a solution where the gains made over two decades are reversed, The Indian Express has learnt.That’s the big-picture sense from conversations with officials who have to balance the imperatives of politics in a pre-poll year and a reform that has withstood the pressures of time — and partisanship.There are options.One, increase the government contribution to the pension corpus of its employees from the current 14 per cent to such a level that the employee can expect 50 per cent of her last drawn basic pay as pension upon retirement.Indeed, one of the models being looked at is the Andhra Pradesh government proposal which has a “guarantee” that employees will get 50 per cent of the last drawn salary as pension.Officials said the government may also explore ways to make good for the increase in payout (dearness relief announced twice every year increases the pension by a certain percentage taking care of the rise in living expenses) as it happens under the old pension scheme (OPS).The NDA lost elections in 2004, the year NPS was implemented. But the Congress carried it forward. After a decade, when NDA returned under Modi, it consolidated the gains. But in 2019, just before elections, NDA hiked government contribution. Now, a fresh review again just ahead of 2024 polls.Whatever the formula that’s worked out, one thing is clear.The committee and its mandate mark a sharp turnaround in the Modi government’s support of the new pension system (NPS) — where contributions are defined, and benefits market-linked — which came into effect in January 2004, just a few months before the Lok Sabha elections.“There was no question of any looking back when the BJP under the leadership of Narendra Modi returned to power. His political conviction in pension reforms and fiscal conservatism meant the NPS was there to stay,” said an official.And yet there was no escaping the politics.In fact, the BJP’s electoral loss in May 2004 may have nothing to do with pension reforms – the Atal Bihari Vajpayee government was convinced of the economic rationale behind the move. But the party’s 10-year loss of power, between 2004 and 2014, is a memory that still stalks North Block.This when, in 2009, BJP’s loss in the Lok Sabha elections had not deterred the Congress from staying the course on pension reforms. With Manmohan Singh at the helm, and P Chidambaram as Finance Minister, the Congress-led United Progressive Alliance government earnestly implemented the NPS, exhorted states to follow suit, and also introduced a Bill to develop and regulate the pension sector. This was one of the many reforms that earned bipartisan support.There were four good reasons the government reformed the pension sector at the time it did: i) with increasing life spans, pension bills were ballooning, putting to risk future finances of the Centre and states, ii) a safety net for a very small percentage of workforce was being funded ironically by even the poor taxpayer, iii) inter-generational equity – the next generation footing the bill for the previous – presented a difficult-to-ignore moral hazard, and iv) India was at the cusp of a 50-year demographic dividend opportunity beginning 2005-05 with the best working age population ratio (workers or those in the 15-64 age group age/ dependents or those under 15 plus 65 and over).However, after the first five years in power, the BJP-led NDA government at the Centre did not take any chances. Just before Lok Sabha elections in 2019, it increased the employer’s contribution to NPS to 14 per cent of the employee’s basic pay every month from 10 per cent earlier; the employee continued to contribute only 10 per cent of her basic pay.The timing was not lost on those keeping a tab on BJP’s economic thinking; this came into effect from April 1, 2019.Now with just a year to go for the 2024 Lok Sabha elections, the BJP is acutely aware of an altered economic and social landscape. The straws in the wind have been there for the past couple of years.Low growth that precedes the pandemic, job and income losses during Covid-19, stretched financial resources of people due to medical expenditure, and high inflation – which works like a painful tax on the poor, have highlighted the inadequacy of safety nets for a bulk of the country’s people. The political class cannot be blind to this. To discount the giveaways in recent Budgets by even fiscally prudent states like Tamil Nadu and Maharashtra as an election freebie will be drawing a wrong message.It is in this backdrop that government employees are demanding a return of the old pension scheme. At least five states (Congress-ruled Rajasthan, Chhattisgarh and Himachal Pradesh, JMM-led Jharkhand, and Aam Aadmi Party-led Punjab) have done so, having already notified the old pension scheme.The Congress win of the Assembly elections in Himachal, which most attribute to its promise to bring back OPS, has made the BJP leadership anxious. In Maharashtra, protests by state government employees prompted the Eknath Shinde government, whose finance minister is BJP’s Devendra Fadnavis, to set up a committee and address the NPS shortcomings. Some national employee unions continue to protest too, giving calls for rallies demanding restoration of OPS.Then, there is the insider bias. A section of senior IAS bureaucrats – who have the political executive’s ear – feel their juniors who joined service after January 1, 2004, can’t be left to the “mercy” of markets while seniors retire with the assurance of a continuously rising pension kitty.This conversation on NPS has been in the top echelons of power for a while now. Not that the Prime Minister is not aware of these noises around him. But if his preference for fiscal prudence is an indication, he will be happy only with a solution that doesn’t put the future of state finances in jeopardy.

Finance Ministry’s red flag: One-time payment of OROP dues could have had fiscal implicationsPremium Story

The Indian Express | 5 days ago | 24-03-2023 | 12:45 pm

The Indian Express

5 days ago | 24-03-2023 | 12:45 pm

The upfront payment of arrears for One Rank One Pension (OROP) potentially triggering wide fiscal implications was red-flagged as a concern by the Finance Ministry as the government submitted its inputs in a recent hearing on this issue in the Supreme Court. The government’s revised estimates for 2022-23 were prepared with the view that pending payments for OROP can be cleared in instalments spread throughout the financial year and any deviation from this could have resulted in “abnormal borrowing”, finance ministry sources said.“Our revised estimates were prepared with the OROP being paid in instalments. This decision to pay OROP in instalments is in our assumption of our revised estimates on borrowing. Any change to this principle would have entailed abnormal borrowing after the borrowing for the year has closed. The government expressed its concerns on the inability to pay the OROP arrears in one instalment without fiscal implications,” a senior Finance Ministry official told The Indian Express, requesting anonymity.The official said that as a standard practice, as has been seen in earlier instances of Pay Commission-related payouts or the initial OROP rollout, any large lump-sum payment gets distributed in instalments to manage cash flow. Any change in government’s market borrowing now to accommodate upfront payment of arrears would have impacted market yields, which are also seen as crucial for states’ borrowings.“Borrowing management is essential. The borrowing calendar is disclosed every year in advance. Sudden changes to the borrowing calendar after the market borrowing has been completed has severe yield-related implications,” the official said.While the apex court had come down heavily on the government for submitting its reply on the issue in a sealed cover, its agreement to a phased implementation provides a fiscal breather for the government to first clear other dues, such as the Rs 36,325 crore apportioned for fertiliser subsidies in the supplementary demands for grants.The government’s fiscal calculations have been under strain in the aftermath of the Russia-Ukraine war and a global economic slowdown. Though the revision for OROP was due in 2019, other revisions for government payouts also got delayed during the pandemic.  “…even for 2020 and 2021, which were among the worst years financially for the Government of India, dearness allowance installments were stopped then,” the official said.To put the numbers in perspective, the Budget for Defence Ministry has allocated Rs 1.38 lakh crore as pensions and other retirement benefits for servicemen for 2023-24. The allocation for pension and social security under the Finance Ministry stands at Rs 71,701 crore for FY24. The pension expenditure of the Defence Ministry has been more than 20 per cent of the ministry’s budget over the last five years, with pension payments growing at an annual rate of 12 per cent between 2013-14 and 2023-24. The pensions under OROP get revised every few years, unlike other pension or government payout revisions, which get revised only during the Pay Commission, thus becoming a significant financial cost to the government, a person aware of the matter said.In December 2022, the government approved revision of OROP pension with effect from July 1, 2019. More than 25.13 lakh (including over 4.52 lakh new beneficiaries) Armed Forces pensioners/family pensioners were estimated to benefit from this revision.At that time, the government had said that arrears would be paid in four half-yearly instalments, except for family pensioners — including those in receipt of special/liberalised family pension and Gallantry Award Winners — who would be paid arrears in one instalment. The arrears from July 2019 are estimated to be Rs 28,138 crore, for which a provision of the same amount has been made in the Defence Ministry’s revised estimates for 2022-23. As per government data, around Rs 57,000 crore has been spent (Rs 7,123 crore per year) in eight years in the implementation of OROP.In January, the government had issued an order stating that the OROP arrears would be paid in four half-yearly instalments. A group of ex-servicemen challenged this in the SC, asking for arrears to be paid in one instalment. The SC earlier this month asked the Defence Ministry to withdraw its order, stating it was “contrary” to its verdict of last year that had asked for the clearing of all arrears within three months.The bench had noted that four lakh personnel died since these matters were instituted before the court (in 2016).On Monday, the SC asked the government to clear OROP dues for pensioners by February-end of next year in three equal instalments. It instructed the government to clear pending arrears to six lakh family pensioners and gallantry award winners by April 30 and pay dues to retired servicemen aged 70 and above in one or more instalments by June 30, 2023, while dues for remaining pensioners will have to be cleared by February.

The controversy over govt’s move to clear OROP arrears in four batches

The Indian Express | 1 week ago | 21-03-2023 | 12:45 pm

The Indian Express

1 week ago | 21-03-2023 | 12:45 pm

The Supreme Court Monday asked the government to clear One Rank One Pension (OROP) dues of 10-11 lakh pensioners by February end of next year in three equal instalments.Refusing to take the sealed cover from the defence ministry on the OROP arrears case, the apex court also set deadlines of April 30 for the defence ministry to clear pending arrears to six lakh family pensioners and gallantry award winners and dues to retired servicemen aged 70 and above in one or more instalments by June 30.The dues for the remaining pensioners will have to be cleared by February 28, 2024.The Narendra Modi government implemented the OROP for Armed Forces personnel and family pensioners in 2015. In a letter issued in 2015, it said pensions would be revised with effect from July 01, 2014, and said the pension would be reset every five years.In keeping with that, the union cabinet in December last year had approved revision of pension of Armed Forces pensioners and family pensioners under OROP with effect from July 1, 2019.This meant that the pension of the past pensioners would be reset based on the average of minimum and maximum pensions of the defence forces retirees of the calendar year 2018 in the same rank with the same length of service.All Armed Forces Personnel who retired till June 30, 2019, were to be covered under this revision, which will include more than 25.13 lakh (including over 4.52 lakh new beneficiaries) Armed Forces pensioners/family pensioners. The benefit would also be extended to family pensioners, including war widows and disabled pensioners.At that time, the government had said that arrears will be paid in four half-yearly instalments, except for family pensioners — including those in receipt of special/liberalised family pension and Gallantry Award Winners — who will be paid arrears in one instalment.The arrears are the amount calculated between July 2019 and December 2022, when the revised OROP was not under implementation but was supposed to be.Accordingly, an amount of Rs 28,138 crore was included in the defence pensions budget for 2023-24 to meet this requirement.After the government’s December 2022 decision — further reiterated by a government order issued in January this year — a group of ex-servicemen moved the apex court seeking that the arrears be paid in a single instalment instead of four instalments.The January order stated that the OROP arrears would be paid in four half-yearly instalments.The ex-servicemen in its plea said the Centre, by issuing this order, subverted the apex court’s March 2022 order, in which it had said that arrears payable to all eligible pensioners of the armed forces shall be computed and paid over accordingly within a period of three months.Subsequently, the Supreme Court earlier this month asked the defence ministry to withdraw the order. It had said the communication was “directly contrary” to its verdict of last year that had asked for the clearing of all arrears within three months.The Supreme Court’s Monday directives to the government on new deadlines come against this backdrop.As per officials in the government, the cabinet note which was approved by the union cabinet last year had mentioned that instalments be cleared in four instalments, barring exceptions.While the government did make an appropriation of 28,138 crores in the budget for 2023-24 for payment of OROP arrears, officials explained this does not mean that this entire budget is available to the government for a lump sum payment.They said for every instalment paid, the Ministry of Finance will have to balance cash inflows and outflows — in the absence of which the government might need to go for additional borrowings to fill the deficit. Currently, the government is not in favour of such a move.As per government data, around Rs 57,000 crore has been spent (Rs 7,123 crore per year) in eight years in the implementation of OROP.While the Supreme Court came down heavily on the government for submitting its reply in a sealed cover, it gave the government three separate deadlines for the clearing of dues by February next year. The phased deadline likely gives the government a breather in planning the finances related to disbursing OROP arrears, as against clearing it all together.While the instalments may not be divided into three equal amounts, it will still have some time to arrange for the second instalment of arrears after it pays the first by April 30. With the Centre earlier planning to clear all dues by March 15, the new deadlines also offer it an extra period of 1.5 months to clear the first instalment.

Why French President Macron is in trouble over pension reform

The Indian Express | 1 week ago | 21-03-2023 | 12:45 pm

The Indian Express

1 week ago | 21-03-2023 | 12:45 pm

By Richard LoughPresident Emmanuel Macron faces the toughest challenge to his authority after his government bypassed the lower house to push through a deeply unpopular pension reform bill that will raise the retirement age. Here is why.The legislation raises the retirement age by two years to 64. The change will be implemented gradually, with the age increased by three months each year starting from this September, until 2030. Some workers in jobs deemed physically or mentally arduous will maintain the right to retire earlier than most of the working population.From 2027, most workers will have to make social security contributions over 43 years rather than 42 years in order to draw a full pension. This was already foreseen in a 2014 reform but Macron is accelerating the pace of transition.In comparison, the United States is slowly raising its retirement age to 67, while Britain has announced plans to raise the state pension age to 68 by somewhere between 2037 and 2039.Macron’s government says reform is necessary to keep the pension budget in the black. Failure to act would see the pension system record an annual deficit of 13.5 billion euros by 2030, the government forecasts.The principal measures were initially seen generating 17.7 billion euros in additional contributions by 2030. The government calculated that “accompanying measures” to smooth the way would cost 4.8 billion euros, creating a 0.3 billion euros surplus in 2030.However, additional sweeteners raised this cost to 6 billion euros, leaving the government to find further last-minute savings and extra contributions to balance the budget. France’s pension system costs nearly 14% of GDP, the third highest within the OECD behind Italy and Greece.The pension system is a cornerstone of France’s cherished model of social protection. It is founded upon an obligatory contributory pension scheme and upon solidarity between generations. In other words, the contributions of those who are currently working directly fund the pensions of those now in retirement.Individuals can make voluntary contributions into savings products to top-up their eventual pension through the state-run system, but private pension funds like those common in Britain and the United States do not exist.Past presidents including Nicolas Sarkozy and Jacques Chirac met similarly fierce resistance from trade unions and on the street when seeking to change the pension system.Macron’s decision to ram through the pension legislation without a vote has infuriated opponents and triggered pockets of violent unrest.The government faces a vote of no-confidence in parliament. The motion is expected to fail, leaving the government to fight another day, while trade unions promise to keep up their battle. If unexpectedly the no-confidence vote is passed, Prime Minister Elisabeth Borne would tender her government’s resignation in the hours that followed.Macron would have to form a new government with no working majority in parliament and remain reliant on a deeply divided mainstream centre-right for support. He could call a referendum on the pension reform and risk it becoming a plebiscite during his presidency. Or he could dissolve parliament and call snap elections, a move observers predict would only weaken him further in the National Assembly.

Govt warns of action if staff join Old Pension Scheme protests

The Indian Express | 1 week ago | 21-03-2023 | 12:45 pm

The Indian Express

1 week ago | 21-03-2023 | 12:45 pm

THE CENTRAL government has warned its employees against participating in strikes or protests over demand for restoration of the Old Pension Scheme (OPS).In a communication to all ministries on Monday, the Department of Personnel and Training (DoPT) said, “The undersigned is directed to inform that the National Joint Council of Action under the banner of ‘Joint Forum for Restoration of Old Pension Scheme’, has planned to organise district-level rallies across the country on March 21, exclusively over OPS.”“The instructions issued by the Department of Personnel & Training prohibit Government servants from participating in any form of strike, including mass casual leave, go-slow, sit-down etc. or any action that abet any form of strike in violation of Rule 7 of the CCS (Conduct) Rules, 1964. Besides, in accordance with the proviso to Rule 17 (1) of the Fundamental Rules, pay and allowances is not admissible to an employee for his absence from duty without any authority,” the communication said.“Central Government Employees under your Ministry/Departments may, therefore, be suitably informed of the aforesaid instructions under the conduct Rules issued by this Department and other regulations upheld by the Hon’ble Supreme Court. They may be dissuaded from resorting to strike in any form, including protest,” it said.“Instructions may be issued not to sanction casual leave or other kind of leave to employees if applied for during the period of the proposed protest/strike and ensure that the willing employees are allowed hindrance free entry into the office premises.”“For this purpose, Joint Secretary (Admn) may be entrusted with the task of coordinating with security personnel,” it said. “In case the employees go on dharma/protest/strike, a report indicating the number of employees who took part in the proposed dharna/protest strike may be conveyed to this Department on the evening of the day.”Acting on the order, the Animal Husbandry and Dairying department warned its employees of action if they participated in protests over OPS demand. In a circular, it said that in case any official participates in the strike/protest, it will be brought to the notice of the competent authority for appropriate disciplinary/penal action.

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