NEW DELHI: Finance minister Nirmala Sitharaman
on Friday announced the establishment of a committee to review the New
Pension System amid demands from a section of employees and the decision
by some opposition-governed states to revert to the old pension scheme, which offers 50% of the last pay drawn by government employees as pension.
The
panel, headed by finance secretary TV Somanathan, will “evolve an
approach which addresses needs of employees while maintaining fiscal
prudence to protect common citizens,” the minister told the Lok Sabha as
she moved 64 amendments to the Finance Bill.
In less than 45
minutes, the tax amendments, including those related to debt funds and
Securities Transaction Tax, were cleared without any discussion by the
Lower House, amid protests by opposition parties.
Faced with a rising pension liability, the Centre had, from January 2004, opted to move to NPS for all new recruits, with the government employees contributing 10% of their salary towards pension and the government making a matching contribution. Subsequently, the Manmohan Singh government also got the states to join NPS, moving to a defined contribution regime, instead of a defined benefit scheme.
Currently, there are close to 85 lakh subscribers, of whom over 60 lakh are from the states, and the assets under management add up to more than Rs 6.8 lakh crore. Since inception, the annualised return for central government employees works out to over 9.2%, while for state government employees, it is over 9.1%.
Opposition-governed Rajasthan,
Chhattisgarh, Jharkhand, Himachal Pradesh and Punjab have decided to opt
out of NPS but are unable to get a refund of the money deposited with
the pension fund managers as the law does not provide for it. In the
absence of a refund, the three states will have to either provide the
fund for the last 16-17 years or stick to NPS.
While the Centre has
so far refrained from stepping into the issue, there has been growing
demand in some of the BJP-governed states, such as Maharashtra, as well
as some of the employee unions at the Centre, like railways, to revert
to OPS, prompting Sitharaman to announce the panel.
“The approach
will be designed (by the committee) for adoption by both the central
government and state governments,” Sitharaman said in Parliament. The
announcement came just ahead of assembly elections in several states,
including Karnataka and MP.
Economists and policymakers, including
those such as former Planning Commission deputy chairman Montek Singh
Ahluwalia, have argued that a return to OPS will have a devastating
impact on government finances.
Government sources have maintained
that based on current trends, sticking to NPS for 30-35 years will
ensure a healthy payout based on current returns. Besides, they have
discussed the possibility of the government topping up the corpus to
ensure that those who are part of the scheme for a certain number of
years end up with a pension that is around half the last pay drawn.
Even
with this mechanism they believe that the government will not be
over-burdened while ensuring that the employees are not worse off.
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