R. ELANGOVAN, DREU
This question is asked by each and every employee appointed on or after 1-1-2004. At present, there are about 34 lakhs 80 thousand and 697 Central Government Employees in India including railways and defense. Of which 22 lakhs 74 thousand and 616 employees as on 28-2-2022 are covered under NPS, i.e., 60% are in NPS. The following is the break-up of number of NPS employees in central government departments as on 28-2-2022:
CIVIL = 8,68,256
POSTS = 1,15,446
TELECOM = 1,611
RAILWAYS = 8,15,263
DEFENSE = 1,92,371
NCT = 48,920
CENTRAL AUTONOMOUS
BODIES = 2,32,829
TOTAL = 22,74,616
Old pension: Old pension is defined benefit scheme. Employee who has put-in a minimum of 10 years qualifying service is eligible for 50% of last drawn pay as monthly pension. The minimum guaranteed pension is Rs. 9000. Out of monthly pension an amount equal to 40% of the pension can be commuted (i.e. can be withdrawn in advance, which will be recovered in 15 years) and can get a lump-sum payment in advance. After commutation residual pension and DA on full pension will be paid for 15 years. If the pensioner dies before 15 years they need not repay the balance. The pension increases after 80 years of age by 20%, 30% after 85, 40% after 90, 50% after 95 and 100% after 100 years of age. Whenever Pay Commissions submits recommendations for wage revision it necessarily contains recommendations for revision of pension also. Apart from Pension and Family Pension a lump-sum payment of “Death cum Retirement Gratuity” is also given. Maximum is Rs. 20 lakhs. Family Pension, since 1964, is granted for spouses (wife/ husband), unmarried/widowed/divorced daughters and crippled son/daughter who is not able to earn his/her livelihood. An employee who becomes medically unfit in all classes during service are entitled for invalid pension and gratuity and employees who are crippled due to accident are eligible for Extra-ordinary Pension. Payment of gratuity or commutation amount do not attract any tax.
Before 1957 there was SRPF(C) [State Railway Provident Fund (Contributory)] scheme under which 10% of basic pay from the salary of employees was deducted towards this scheme and government gave matching contribution of 10%. At the time of retirement total contribution with interest was paid. And Government gave another lump-sum payment called Special Contribution to PF (SC to PF), which was equal to Gratuity, to all employees who had put-in good service. In 1957 when pension scheme was introduced it was introduced in place of government contribution w.e.f. 16.11.1957 and since then government contribution (including SC to PF) was stopped. But Provident Fund scheme continued at the rate of 8.33% of basic pay with interest there on. Employee may withdraw from PF as temporary withdrawal till completion of 15years and after 15 years of service final withdrawal may be made. No documentary proof is needed. The Special Contribution to PF was replaced by Death cum Retirement Gratuity.
New Pension System – Features, myth and Failures:
Defined contribution but non-Defined benefits: NPS is not the defined benefit scheme. Its contribution is defined but the benefit is not defined. It is uncertain. Whereas, under old pension scheme there is no contribution from employees and the benefits like pension, Gratuity, Commutation etc., are well defined.
Introduction: BJP ruled Government introduced NPS illegally by an executive order on 22-12-2003 w.e.f.01.01.2004. The UPA-II government led by Congress passed the PFRDA Act, 2013 with the support of BJP, DMK, AIADMK and all regional and national parties except left parties on 4th in Lok Sabha and 6th in Rajya Sabha of September 2013. However, it was made legal only w.e.f.01.02.2014 through gazette notification. Therefore, in the face of it NPS was illegal upto 31-1-2014. It is to be noted that left parties did not allow the UPA-I to pass the bill until it withdrew support in 2009. They could pass only after left parties’ withdrawal and also after weakening of strength of left parties in Parliament in the 2009 election when UPA II did not need the support of left.
Features of NPS: Under NPS 10% of basic pay (including pay element of running staff) plus DA is recovered. This is under TIER-I account. Government gave equal amount as matching grant as was given before 1957. Now government contribution has been enhanced to 14%. Both the amounts earned interest until August, 2008. Thereafter it was sent to Bank of India, a nationalized bank. Now it is sent to Axis bank, a private bank. The total amount is distributed to three pension fund managers of LIC, SBI, UTI. They invest 15% in share market and 85% in bonds, both government and private corporates. As per the NPS Act there is no hidden or open guarantee for returns on this investment. As per one of the 8 risks listed by SEBI there is a Risk Of Loss Of Principal. It is like the game of ladder and snake (Parama padam). In capitalist countries the market is always risky. The amount invested and the return together is called the pension wealth.
At the time of retirement on attaining 60 years, if the principal and savings are still available, a sum equal to 60% of total is given to the retiree. It attracts taxation unlike old pension. Remaining 40% has to be invested in annuities and the retiree is given option to choose the company in which he may invest in annuity. Investment of 40% of Pension Wealth in annuities is mandatory. In case an employee voluntarily retires or resigns before 60 years he will also be paid only 60% of pension wealth and balance 40% of Pension Wealth will have to be invested in annuities for pension scheme as per the rules recently published. For all other exits from service they will get only 20% and 80% has to be invested in an annuity for pension. If the total amount of Pension Wealth is Rs.5 lakhs and less the entire amount can be withdrawn.
TAXABLE: Though it is stated that this 40% or 80% does not attract any tax to the actual amount of investment, 18% GST is imposed. The PFRDA has listed certain annuity providers like LIC and ICICI. This 40% or 80% amount is called purchase price. That is you purchase a scheme for pension.
Different Types of NPS Annuities and benefits:
- Default Scheme: According to this scheme the pension will be paid for life. After the death the wife or husband(spouse) will get the same amount until death. If the spouse dies before the NPS subscriber nobody else will get the pension. Neither crippled son nor unmarried or widowed or divorced daughter will get the pension as it is available in old pension scheme. The nominee will get back the invested amount i.e. purchase price will be returned.
- Another scheme is the one in which you are given pension for life. After the death of the subscriber the pension is stopped. Spouse will not get the pension not to speak of crippled son, daughters unmarried, divorced or widowed. Above all the purchase price is also lost. That is spouse or nominee will not get back the invested amount. In some other variant schemes also purchase price is lost, not returned.
Investment in Annuities: What the annuity company does with the purchase price? They invest it 100% in the share market. If there is share market crisis the investment will get wiped out and the company does not guarantee a minimum pension. When Shri Basu Deb Acharia, a CPI(M) MP moved an amendment to the ACT for guaranteeing minimum pension at the rate of 50% of last drawn pay, subject to the minimum pension in the Central Government it was not accepted by the government and was voted out by all other parties.
ATAL PENSION YOJANA: But in the “Atal Pension Yojana” introduced by BJP government for people in unorganized sector the pension is based on the investment. If one opts for minimum pension of Rs.5000 his accumulated contribution is Rs8.5 lakhs. If the investment in share market earns higher amount then the investor will get more pension than Rs.5000. Government guarantees minimum pension of Rs.5000 in the eventuality of earning lesser amount or is wiped out in the crisis. After the death of the pensioner the spouse will get the guaranteed same amount of pension. After the death of both husband and wife the purchase price is returned to the nominee.
But this same government refuses to pay minimum guaranteed pension to its own employees. In the aftermath of withdrawal of indefinite strike from 11.7.2016 the government appointed a committee to streamline the New Pension Scheme instead of abolishing the NPS. However, it is understood that this committee also has rejected the demand for guaranteed minimum pension.
THE ANNUITY & PENSION: In the default scheme, in which spouse will get the same pension and the purchase price is returned to the nominee, the monthly pension will be Rs.524 for every 1 lakh invested as per npscra.nsdl.co.in website. In terms of 2ndscheme where annuity is payable to life of the subscriber without pension to spouse and without return of purchase price, the pension will be more at Rs.713. As per 3rdscheme where 100% annuity is payable to the spouse without return of purchase price the pension for 1 lakh investment will be Rs.612. As per the 4thscheme where annuity is payable to life and without pension to spouse but return of purchase price the pension will be Rs.527.
According to pension scheme under LIC, in the default scheme, to get Rs.9166 per month which is minimum pension in old pension one has to invest Rs.17 lakhs plus Rs.30600 as GST. In the scheme for life without pension for spouse and without return of purchase price, you will get Rs 9181 as pension if you invest only Rs.12,50,000 plus 22,500 as GST.
It is a fact that under the CCS(Pension) Rules minimum guaranteed pension is Rs.9000 and maximum pension is 50% of last drawn pay. And this scheme is available for spouse, crippled son, unmarried, divorced, widowed daughters, etc.. Moreover, Dearness Relief is also granted on pension so as to compensate erosion in money value at every six monthly intervals and at the time of implementation of recommendations of Pay Commissions pension & Family Pension also upwardly increased. But annuity does not allow DA/DR and Pay Commissions will not have any say on it and consequently no chance of upward increase. But there is a possibility of Wiping out in market crisis.
Smt Jayanthy, JAA, whose Basic Pay was Rs.31,000, has retired recently under NPS after putting in a qualifying service of 10 years. She was paid with Rs. 3.8 lakhs against 60% and Rs 2.13 lakh against 40%. She, being a compassionate ground appointee, has no spouse. Hence invested for life scheme. She is getting annuity of Rs.1200 per month. Had she been in old pension scheme she would have got Rs.15,500 as monthly pension which is 50% of her last drawn pay of Rs 31,000 plus DA/DR at appropriate rate. To get an equal amount of Rs.15,500 under NPS she should have invested Rs.21,37,800 in annuity and still there will be no DA/DR. In old pension scheme she would have earned Rs.15500+DA as guaranteed amount and it would not be wiped out in the market crisis. Thus there is no adequate or guaranteed pension under NPS. There may not be pension due to market risks.
IMPROVEMENTS AFTER STRUGGLES: Initially there was no provision for payment of gratuity and PF savings under NPS. The scheme did not also have provision for payment of Family Pension, Death Gratuity, extra-ordinary pension etc in the event of death or disability of government servant. Withdrawal from TIER-I was not allowed. Though provision indicated for withdrawal from TIER-II account, it does not attract matching grant from government. You can Withdraw from Tier-II any amount any number of times for any purpose.
Court Case and struggles: The Gratuity Act should be applied in cases where there is no provision for gratuity under service rules. As per the provisions of this Central Act no worker in this country, who has put-in a minimum of five years’ service shall go without gratuity as terminal benefit. DREU put-forth this legal position in its case before the Hon’ble CAT/Madras Bench in OA No.575/2011. In the wake of legal battle and the nationwide strike on September 2,2016 by all Central Trade Unions and Confederation of Central Government Employees the Central Government issued order on 26.8.2016, just before the strike, for granting Death Cum Retirement Gratuity with retrospective effect from 1-1-2004. Had AIRF and NFIR also joined this strike call we could have further achieved improvements like minimum pension guarantee etc.
Prior to this that too after much criticism and struggles by some Trade Unions against absence of provision for Family Pension, Death Gratuity etc., in the event of death and disability of a Government Servant, the government issued provisional orders on 5-5-2009 for extending the benefit of Family Pension and Gratuity under (Pension) Rules, 1972. Disabled/invalid employee will get disability/invalid pension under old pension rules along with gratuity. Both will be effective from 1-1-2004. But even after two years from the date of issue of this order the Southern Railway administration did not implement it until 2011. It was only as per the Interim Orders of Hon’ble CAT/Madras Bench in OA No.575/2011 all such employees got pension and gratuity. It was only after these interim orders of Hon’ble Tribunal all pending cases in Southern Railway were settled in favour of families of deceased Railway Servants. Now government insists for an undertaking for surrendering of entire pension wealth in favour of Government/Railways for availing benefits under (Pension) Rules, 1972 as per NPS RULES. This is unjustified penal provision, because employees’ contribution is entirely mis-appropriated without taking into account PF components of 60% of NPS accumulated value, which should be paid to the family. DREU has raised this point in its case.
Provident Fund scheme is also applicable to all workers as per EPF Act. But it is not applicable to central government Employees because there is separate rules of GPF for them under. If GPF is not available to NPS employees as per rules the Act should be applied to them. Because no worker should be left without Provident Fund as per this Act. This legal provision was argued in our case. Now the government is proposing to deny this 60% said to be of PF component to the family of deceased employees. Now the Government intend to mandate that entire 100% of pension wealth should be invested in annuity thereby totally denying savings to them.
However after three years of membership in NPS one can withdraw permanently 25% of his contribution three times in service for marriage of children, purchase of house or for certain diseases producing documentary proof has been done away with and self-certification is enough.
Illegitimate Scheme: DREU has argued in its case that the government recovers 10% of pay and then contributes an amount by parliament sanction only to pay pension to the employees. But instead of giving the amount to the pensioners and family members the government hands over this amount to private companies and allows it to gamble and wash off its hands from paying pension directly to the employee. It is not guaranteeing pension and leaves pensioner in lurch. This is in violation of Article 114 of constitution. According to this article the amount should not be varied or its destination altered. Besides, the contribution of employees is their property and it cannot be handed over to somebody detrimental to their interest. The Hon’ble Supreme Court has ruled that the pension is a right and not a bounty. The pensioner should not be left in lurch. We have also argued that all those appointed upto 31-1-2014 when NPS was illegal should automatically be reverted to Pension Rules, 1972. The Hon’ble Supreme Court has in many cases has ruled against the Acts of Parliament if they run counter to the mandate of constitution.
We can win: All Central Trade unions are in the warpath against this un-assured and inadequate pension. Even AIRF and NFIR and BMS who initially welcomed the scheme and AIRF leader Umraomal Purohit was in the NPS trust as a trustee finally started opposing the scheme. If only all the three federations join with central government confederation and the national strikes it is possible to end this scheme.
All the state governments implemented NPS, except three left parties’ governments in Kerala, West Bengal and Tiripura. But when Congress came to power in Kerala they implemented NPS in Kerala w.e.f. 1-4-2013.West Bengal is still continuing with old pension even after TMC came to power. Tripura has elected BJP led government and they have implemented NPS in Tiripura wef July 2018.In state governments there are 56,09,280 employees in NPS.Many state governments who promised to restore old pension have gone back from the promise.Recently Rajasthan government has implemented old pension scheme and stopped recovery towards NPS. Chatisgarh government has also implemented the old pension to its employees wef 1-4-2022.Both governments are of Congress which brought the Act. Now the fire has been ignited and it will have political impact in all states.
In Argentina and Bolivia the NPS had been implemented. When left parties came to power fighting against globalization and liberalization they have abolished NPS and have implemented old pension. In india also all those who supported the NPS have started opposing it and joining the mainstream. One day we will win old pension.