Volume 7, No. 5, May-June, 2006

 

The New Pension Scheme—another onslaught on the people

Rashmi

 

On 1st January, 2004, a New Pension Scheme (NPS), was introduced by the government. This scheme is a defined contribution (DC) scheme in contrast to the defined benefit (DB) scheme which was in force earlier. According to this, the pension earner would be contributing towards the pension that he/she gets after retirement.

While the original intent of the NPS was to provide an opportunity to the majority of India’s employed to save for their retirement, the government decided to extend this contributory pension scheme to its own employees. In line with this decision, the government notified the new pension rules for people who would join the central government service after January 2004. An estimated 200,000 central government employees are already covered by the NPS and fifteen state governments have also formally adopted this scheme for their own new employees. The states are: Andhra Pradesh, Assam, Chattisgarh, Goa, Gujarat, Madhya Pradesh, Jharkhand, Himachal Pradesh, Maharashtra, Manipur, Orissa, Rajasthan, Tamil Nadu, Uttar Pradesh and Uttaranchal.

The new scheme is being hailed on the grounds of saving a huge cost of pension liabilities of the government. The Standing Committee on Finance (SCOF) has called India’s pension reforms, an urgent necessity.

The first scheme of this kind, wherein the employees are made to contribute towards their own pensions, was introduced by Chile in 1980 under the guidance of the World Bank. Other Latin American countries like Argentina and Uruguay followed. Predictably, the next in line would be the Asian countries like India. And the Indian government, which has been prostrating before the World Bank in all other matters, has done nothing different in this regard.

The NPS is in effect, curtailing the existing pension facilities. According to an all India survey conducted for the Ministry of Finance, just about 19% of those about to retire in the next decade, or those in the age group of 51-60 years, are covered by some formal retirement scheme. And less than 2% of those not covered pension schemes will be able to support themselves at even vastly reduced levels of expenditure after their retirement. Leave alone extending the pension scheme to people uncovered yet, such as the senior citizens of the informal sector, the government introduced a policy, wherein even the sections covered by the pensions, would have to contribute towards it.

Also, as per the proposals given in the new scheme, private fund managers will also be provided access. These fund managers would be licensed by the PFRDA (Pension Fund Regulatory and Development Authority). The PFRDA Bill, tabled in the last budget session, has not been passed yet, but the intention of the government is quite clear. This would mean that the savings of the people would be channelised into private companies and stock markets. Although, the individual employee would have a choice with regard to which fund manager to opt for, but the ultimate result would be the same.

First, the government curtails its responsibility towards its employees by making them save for their own pensions, and on top of it these savings would be used for fuelling the profits of foreign and Indian big capital. Like all other new reforms, NPS too will serve the interests of big capital at the cost of the working people.

 

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