A 12 lakh vote bank: Why parties are talking of old pension, new pension

Akhilesh Yadav announced last month that if the SP formed the government, it would restore a pre-2005 “old pension scheme” (the SP was in power at the time, led by Mulayam Singh Yadav). Six days later, UP Chief Secretary Durga Shanker Mishra held a review with officials and issued a statement specifying how the “new pension scheme” was more beneficial. Chief Minister Yogi Adityanath then attacked Akhilesh, saying the “new pension scheme” had actually got clearance in 2005 under Mulayam, and remained in cold storage.

On Wednesday, the Congress got into the game, with its manifesto promising a “mid-way” solution.

Whichever scheme is finally enforced, the beneficiaries would be those retiring around 2030-35, since it would apply to those hired after 2004. However, in the short term, all parties have eyes on the 12 lakh government employees and their families:

What is the New Pension Scheme?

The scheme, now referred to as the National Pension System (NPS), was introduced by the Centre for all appointments after January 1, 2004. The NPS is regulated under the PFRDA (The Pension Fund Regulatory & Development Authority) Act, 2013.

Under the NPS, every government employee is allotted a Permanent Retirement Account Number, and has to mandatorily contribute 10% of pay and dearness allowance to the pension fund, which is matched by the government. This money can then be invested by fund managers. After the latest amendment, in 2019, the government share of the contribution has been raised to 14% from 10%.

At superannuation, the employee can withdraw 60% of the corpus but is required to invest at least 40% to purchase an annuity from an insurance firm regulated and registered by government authorities. The interest on the annuity is to be provided as a monthly pension to the employee.

The Centre left it to states to adopt the new system. The Mulayam government did so in 2005.

What is the difference with the old pension system?

The basic difference is that the NPS is a contribution-based pension system. Under the old system, pension was fixed as 50% of the last basic salary drawn, along with other benefits. Hence, the benefit due was defined beforehand. However, in case of NPS, the pension benefit is determined by factors such as the amount of contribution made, the age of joining, type of investment, and the income drawn from that investment.

What is the government’s stand?

Additional Chief Secretary, Information, Navneet Sehgal told The Indian Express it was “practically not possible” for the government to go back to the old structure. First, any state withdrawing from the scheme notified by the Centre needed its approval. Second, he said, Rs 20,000 crore of the funds drawn from contributions of employees and the government were already invested in the market for a specific term.

He also said that in talks with employees, they had explained that in 20 years, the benefits received by them would not be any less than under the old scheme. “The focus of the government is to ensure that employees in no way get less than what they might have got in the previous plan,” Sehgal said.

Why are employees concerned?

The NPS has been opposed since the beginning in UP. Over the years, this has gained weight with the rise in numbers of government employees, particularly in teaching, to 12 lakh now. Parties anticipate the decision to also influence the voting behaviour of thousands of youths in the state whose first preference is a government job.

The government’s attempts to clarify NPS “benefits” have been rejected by the unions. “We reached out to different parties trying to explain to them what we want. The SP, after a long discussion, agreed to put it in its manifesto,” says Hari Kishore Tiwari of the Rajya Karamchari Sanyukta Parishad.

According to him, the formula worked out with the SP is that with long years of service still left for those who joined after 2004, the government would form a separate fund on its own, with contribution of employees, and employees would be given pension benefits from the same.

However, not all unions agree with reverting to the old scheme. “The NPS is no doubt market-driven, but like any other market-driven plan, in the long run, it has higher benefits. Moreover, in the time to come, it would not be possible for any government to bear the burden alone as payouts would amount to thousands of crores,” says Yadvendra Mishra, President of the Uttar Pradesh Secretariat Employees Union.

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Tiwari has a counter to this: “All the calculations in support of the NPS are based on the assumption of an average 9% return on investment of our funds. But, which government can assure this return for the long term.”

Tiwari also points out that there have been several cases of fund managers like LIC investing in companies that turned out to be defaulters. “Moreover, some audit reports have shown that the government is not depositing their share of the fund regularly.”