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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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