IDBI Bank officers threaten strike on November 28 over wage revision issue

IDBI Bank officers threaten strike on November 28 over wage revision issue: The officers’ body also wants the New Pension Scheme to be implemented prospectively...

An untimely Obit for Indian Pension System

This refers to Vinson Kurian’s  report captioned “IDBI Bank officers threaten strike on November 28 over wage revision issue”(The Hindu Business Line, October 29). The NPS issue mentioned in the report may need some elucidation. 
The present National  Pension System (Originally introduced through an executive order for central government employees (other than Defence Forces-they were excluded temporarily by a saving clause)  joining on or after January 1, 2004 has none of the features of the Defined Benefit Pension Scheme enjoyed by government employees who were in service as on, or had retired on or before, December 31, 2003. The NPS, as it stands now, is more similar to the Contributory Provident Fund Scheme with some difference in fund management and pattern of withdrawal options.
The introduction of NPS was guided by the rising unfunded pension liability of central and state governments because of the “Pay As You Go” approach followed, which, incidentally was a legacy of East India Company(Taxes were collected as they came and expenditure was incurred on demand, without much concern for sources and uses of funds!). A scientific estimate of central government’s own unfunded pension liability quoted in VI Pay Commission Report put the figure at Rs3.36 lakh crores.
External agencies suggested to GOI that prudent accounting requires funding of such liabilities. GOI got over the inconvenience by announcing to the world that India has ‘discontinued’ Defined Benefit Pension Scheme by replacing it by Defined Contribution Pension Scheme(NPS). The devil in the details like additional burden on governments as NPS involves matching contribution, Defense forces exempt from NPS form a large group in government employees and importantly, government will start reaping the benefits of the changeover only after 30 years from introduction of NPS(when the 2004 batch of employees start  retiring) did not draw anyone’s attention. A study conducted by a team of experts from IIM-Bangalore, ING and GOI(Indian Pension System: Facing the Future) also did not go into such niti-gitties.
By forcing NPS on state governments and other organisations, GOI ensured a pension system which was a reliable social security instrument available for a section of employees (who didn’t factor in retirement benefits while making wage demands) smoothly got uprooted  and dismantled. Another incidental benefit, many are jubilant about, was that workers’ unions became the bad boys both among pensioners and the new victims of NPS among them, considerably reducing their bargaining power.
A word about ‘funding’ pension liability on which the idea of NPS was built up. A media report which appeared sometime back about pension funds in the United States had this to say:
“Using a more conservative method of accounting for financial gains in the marketplace there is a $4.1 trillion gap between assets and liabilities- known as the “unfunded liability”-of all state level pension systems in the United States, according
to State Budget Solutions, a fiscally conservative think tank that deals with tax and spending issues at the state level.”
The scare of unfunded liability  which made us dismantle a good-working social security system came from that side of the Globe!

M G Warrier, Mumbai


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