why we oppose NPS?

R.Elangovan

At present, there are 34,80,697 Central Government Employees in India including those working in Railways and Defense of which 22,74,616 employees, around 60% as on 28-2-2022 are covered under New Pension Scheme.

Contributory PF Scheme

Before 1957 there was Provident Fund (Contributory) scheme under which 10% of basic pay from the salary of employees was deducted towards this scheme and government made matching contribution of 10%. At the time of retirement total contribution with interest was paid. And also 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, the pension scheme was introduced in place of government contribution of PF w.e.f. 16.11.1957 and since then government contribution of PF (including SC to PF) was stopped.  But the General Provident Fund scheme continued at the rate of 8.33% of basic pay with interest there on.

Death cum Retirement Gratuity

The Special Contribution to PF was replaced by Death cum Retirement Gratuity with a maximum of Rs.20 lakhs.

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 Out of the monthly pension an amount equal to 40% of the pension can be commuted (i.e. can be withdrawn in advance, which will be recovered 15 years). After commutation, residual pension and DA on full pension will be paid. The pension increases by 20% after 80 years of age, 30% after 85, 40% after 90, 50% after 95 and 100% after 100 years of age. Whenever Pay Commission submits its recommendations for wage revision, it necessarily contains recommendations for revision of pension also.

Family Pension, since 1964, is granted to 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 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 does not attract any income tax.

New Pension System:

Defined contribution but non-Defined benefits:    NPS is not a defined benefit scheme. Its contribution is defined but the benefit is not defined. It is uncertain.

Introduction:         BJP ruled Government introduced NPS without any legal basis through an executive order on 22-12-2003 w.e.f.01.01.2004.  The UPA-II government led by Congress passed the Pension Fund Regulatory and Development Authority (PFRDA) Act, 2013 with the support of BJP, DMK, AIADMK and many other Regional and National parties except LEFT parties on 4^th September 2013. Gazette notification was issued on 01.02.2014.

Features of NPS:         Under NPS 10% of basic pay plus DA is recovered. This is under TIER-I account. Government gives an equal amount as matching grant as was given before 1957. Recently government contribution has been enhanced to 14%. The total amount is distributed to three pension fund managers of LIC, SBI, UTI. They invest in share market, in government bonds, in private bonds and in debt market. At present one can opt for investment in equities upto 50%. As per the PFRDA there is no (implicit or explicit) hidden or open guarantee for returns on this investment except market based guarantee.  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). The amount invested and the return together is called the pension wealth.

At the time of retirement on attaining 60 years, out of the available principal and savings, a sum equal to 60% is given to the retiree.  It attracts taxation unlike old pension. Remaining 40% is invested in annuities and the retiree is given option to choose the company. Investment of 40% of Pension Wealth in annuities is mandatory. In case an employee voluntarily retires before 60 years, as in the case of retirement, he will be paid 60% of pension wealth and the balance 40% of Pension Wealth will be invested in annuities for pension scheme as per the rules recently published. For all others who exit from the service, they will get only 20% lump sum and 80% has to be invested in an annuity for pension. If the total amount of Pension Wealth is Rs.5 lakhs or less, the entire amount can be withdrawn.

TAXABLE: Though it is stated that this 40% or 80% does not attract any tax, 18% GST is imposed on the actual amount of investment.

Annuities: The PFRDA has listed certain annuity providers like LIC and ICICI. This 40% or 80% amount is called purchase price.

Different Types of NPS Annuities and benefits:

(i) Default Scheme: According to this scheme the pension will be paid for life. After the death of the pensioner, 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.

(ii) 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 daughter. 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.

Investment in Annuities:  What does the annuity company do with the purchase price? They invest 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, it was not accepted by the UPA II government and was voted out by all other parties.

……to be continued