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Moneylife » Life » Public Interest » Introduction of Contributory Pension Scheme in Kerala

Introduction of Contributory Pension Scheme in Kerala

MG Warrier | 23/01/2013 01:30 PM | 

The Kerala government, earlier this month, replaced the “Defined benefit based” pension scheme by the “Defined contribution based” pension scheme. State government employees went on a six-day strike to protest against the new scheme, which was introduced without taking the employees’ views into consideration

The six-day old strike by state government staff and teachers in Kerala, which was called off on 14th January, was the first serious agitation against replacement of the “Defined benefit based” pension scheme in government service by the “Defined contribution based” pension scheme, through the back door. As all strikes so far by government employees in India, the calling off was just a face-saving compromise, without much result to report home. Still, the issues the strike successfully brought to surface and the eagerness of the state government to somehow get back the employees for work, makes the six-day strike a cause for a re-look at the New Pension System. It was introduced by the Centre for central government employees, excluding majority of defence employees from 2004, legislative support for which is still ‘hanging’. Kerala finance minister KM Mani reportedly had negotiations with employees’ representatives till 12.40am on 13th January night which was followed with a wrap-up discussion between employees’ leaders and chief minister Oomen Chandy which lasted till 1.40am the next day.

 

What ails the New Pension Scheme?

 

There was broad understanding between the government and employees on the following:

  • The Contributory Pension Scheme (CPS) will be applicable only to employees joining service from 1 April 2013.
  • There will be arrangements to look into the problems that arise on implementation of the CPS.
  • The problems of employees with low emoluments and short service period will be examined.
  • The Parliamentary Standing Committee has recommended guarantee of minimum pension to be not less than that eligible under EPF Pension scheme.
  • When central regulations are in place, there will be a provision to guarantee the minimum pension.
  • The state government will approach the PFRDA (Pension Fund Regulatory and Development Authority) to include the State Treasury Deposit as an eligible avenue for depositing pension funds.
  • It will be clarified in the new notification that employees in service up to 31 March 2013 will be eligible for statutory pension under the existing regulations.
  • There will not be any disciplinary action for having participated in the strike.
     

NPS throws great opportunity for insurers: PFRDA

 

Whatever be the arguments in defence of the CPS, a time-tested social security arrangement, available to a section of employees, is being dismantled without any credible alternative system in place. When one refers to social security arrangement, one has in mind all pensionary benefits including family pension. While in the private sector and profit-making public sector undertakings, employees have an opportunity to bargain and settle remunerations based on their skill and market realities, government employees and those employed in quasi-government and statutory bodies are a helpless lot, whose bargaining power is stifled in the name of public interest. It is in this context that they deserve special treatment, at least in respect of social security arrangements like pensionary benefits. The cost savings for the Government of Kerala, if any, will accrue only from the date of retirement of the first employee who joins after 31 March 2013. Till such time, there will be an additional outgo to the extent of the employer’s contribution to the fund in respect of employees joining service from 1 April 2013.

 

As for the central scheme, NPS has not been made applicable to defence employees who constitute a major proportion of central government employees.

 

To access other articles by MG Warrier, please click here.

 

(MG Warrier is a freelancer based in Thiruvananthapuram.)


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3 Comments
M G WARRIER

M G WARRIER 2 years ago

Let us have clarity on government’s financial burden issue.
VI Pay Commission noted that the New Pension Scheme implemented for civilian employees recruited on or after 1-1-2004would start yielding benefits only after another three decades. The Commission made the following observation about pension funding:
“In case, however, the Government wants to create a pension fund to discharge their pension liability, the study by Institute for Social and Economic Change (Bangalore) reveals that the net present value of the projected pension liability is Rs3,35,628 crore based on assumed rate of return of 8 per cent.”
NPS will not help reduce this liability. On the other hand, NPS increases the outflow on wage bills in respect of new recruits from the effective date of NPS by 10 per cent (Govt contribution) and further possible demands for higher differential wages in lieu of pension enjoyed by those joined earlier. These arguments mutatis mutandis will hold good for Kerala.
I am not commenting on the US experience in the absence of more details about wage structure there and government’s responsibility there to fund the pension scheme of erstwhile auto majors in US referred in the comment.

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sivaraman anant narayan

sivaraman anant narayan 2 years ago in reply to M G WARRIER

The reference to US auto majors was in the context of how defined benefit schemes have become unviable for the managements to fund in the long run. There is no mention of govt funding of such pvt sector pension schemes.
The move by the centre and state govts to move to NPS is to reduce the long term future liabilities of the pension of new employees, which will be contribution driven and not benefit driven.My understanding is, the move was not to reduce current liability of existing employees which have already accrued.

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sivaraman anant narayan

sivaraman anant narayan 2 years ago

Given the precarious state of the State Govt.'s financial position it has no alternative but to revert to contributory pension scheme from a benefit defined pension scheme. World over defined pension schemes are under funded and have become one of the causes of sickness of the erstwhile auto majors in the US.

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