One system that has featured prominently in Uttar Pradesh electoral discourse and has been mentioned in the manifestos of both the Samajwadi Party and Congress is the government employee pension.
This was announced by Akhilesh Yadav last month that if the SP were to form the government, it would restore an “old pension system” from before 2005 (the SP was in power then, led by Mulayam Singh Yadav). Six days later, UP chief secretary Durga Shanker Mishra held a meeting with officials and issued a statement explaining how more beneficial the “new pension system” was. Prime Minister Yogi Adityanath then attacked Akhilesh, saying the “new pension scheme” was indeed approved by Mulayam in 2005 and remained in cold storage.
On Wednesday, Congress got involved, with his manifesto promised a “medium” solution.
Whichever scheme is ultimately enforced, the beneficiaries would be those retiring around 2030-35, as it would apply to those hired after 2004. In the short term, however, all parties are keeping an eye on the 12,000 government employees and their families.
What is the new pension system?
The scheme now referred to as that National Pension Scheme (NPS)was introduced by the Center for all appointments after January 1, 2004. The NPS is regulated by the PFRDA (The Pension Fund Regulatory & Development Authority) Act 2013.
Under the NPS, every government employee is assigned a Permanent Retirement Account Number and is required to contribute 10% of their salary and allowance to the pension fund, which is supplemented by the government. This money can then be invested by fund managers. After the last change in 2019, the state contribution rate was increased from 10% to 14%.
On retirement, the employee can withdraw 60% of the corpus but must invest at least 40% to purchase an annuity from an insurance company that is regulated and registered by government agencies. The interest on the annuity is to be granted to the employee as a monthly pension.
The center left it up to the states to adopt the new system. The Mulayam government did so in 2005.
What is the difference to the old pension system?
The basic difference is that the NPS is a defined contribution pension scheme. In the old system, the pension, together with other benefits, was set at 50% of the last base salary. Therefore, the service due was determined in advance. However, in the case of NPS, the pension benefit is determined by factors such as the amount of contributions made, the age at entry, the type of investment and the income derived from that investment.
What is the government’s stance?
Additional Chief Secretary, Information, Navneet Sehgal told The Indian Express it was “practically impossible” for the government to go back to the old structure. First, any state withdrawing from the center-reported system required its approval. Secondly, he said Rs 20,000 crore of the funds drawn from employee and government contributions have already been invested in the market for a specified term.
He also said that in discussions with employees, they stated that in 20 years the benefits they received would not be less than under the old system. “The government’s focus is to ensure that under no circumstances do employees get less than they would have received under the previous plan,” Sehgal said.
Why are employees concerned?
The NPS was rejected from the start in UP. Over the years this has gained weight with the increase in the number of government employees, particularly in education, to now 12 lakh. The parties expect the decision will also affect the voting behavior of thousands of youth in the state, whose first choice is a government job.
Attempts by the government to clarify the NPS “benefits” have been rebuffed by the unions. “We approached different parties and tried to explain to them what we want. After much discussion, the SP agreed to include them in their manifesto,” says Hari Kishore Tiwari of the Rajya Karamchari Sanyukta Parishad.
According to him, the formula worked out with the SP is that if there are still long years of service for those who joined after 2004, the government would create its own fund with contributions from employees and the employees would receive pension benefits from the same.
However, not all unions agree with the return to the old system. “The NPS is undoubtedly market-driven, but like any other market-driven plan, it has higher long-term benefits. Moreover, in the coming period it would not be possible for any government to shoulder the burden alone as the payouts would amount to thousands of crores,” says Yadvendra Mishra, President of the Uttar Pradesh Secretariat Workers’ Union.
Tiwari counters: “All calculations to support the NPS are based on the assumption of an average return on investments of our funds of 9%. But which government can secure this return in the long term.”
Tiwari also points out that there have been multiple cases of fund managers like LIC investing in companies that turned out to be insolvent. “Furthermore, some audit reports have shown that the government does not pay its share of the fund on a regular basis.”
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