Demand to restore old pension scheme rising: union chief

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Human beings serve society by engaging in economic production and distribution or by providing services, among other things. After decades of work, say, at age 60, one feels so tired as to withdraw from the services. Then it is for society to take care of his/her economic needs in old age. That is how the concept of pension came about, says R Elangovan, president, Dakshin Railway Pensioners’ Union.

Elangovan was speaking to senior journalist G Ananthakrishnan in an interview with inmathi.com about the old and new pension policies and the Employees’ Provident Fund pension.

While praising the old pension scheme which, he said, had a DA component and family pension, Elangovan said the new pension scheme was inadequate, having no such features.

The first pension law was introduced in 1871 for government and military officials. After service, one had to apply for pension to the district collectors and revenue officials who would calculate the pension due to the applicant.

At the time, the railway administration had a contributory provident fund scheme under which 10 per cent of an employee’s salary was deducted and another 10 per cent contributed by the government itself. The amount thus saved up would be calculated at the end of the employee’s service along with interest and given as a lump sum to the employee, Elangovan said.

There was also another pension scheme called special contributory pension scheme which was as good as gratuity.

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The practice of giving pension to senior citizens originally started in Soviet Russia after the 1917 November revolution. The proletariat-led socialist government helmed by Vladimir Lenin introduced what’s still remembered as universal pension. Taking a cue from this model, capitalist countries across the world introduced a pension scheme fearing a Soviet model-inspired agitation from the workers.

In India, it was in 1957 that pension was introduced and the rules for pension for union government employees and railway employees were enacted in 1972. “Mind you, there is no such thing as universal pension in India. Pension is meant only for civil servants,” Elangovan said.

As per this old pension scheme, an employee who has put in a minimum of 10 years’ service gets a full pension that is equivalent to 50 per cent of his/her last-drawn salary. The pension will also have a component of dearness allowance (DA) that is increased twice a year according to inflation rates.

Way back in 1964, the family pension scheme was introduced, under which an employee’s pension also covers his/her spouse and one of the children, if a widow, a divorcee or a differently-abled child, after the employee’s death.

In the old system, pension was fixed at a minimum of Rs 9,000, whatever pension it was.

Under the old pension scheme, there is a special facility; a retired employee has the option to get his pension commuted; that is, he/she can get a lump sum of 40 per cent of the pension calculated for 15 years in advance. It means the pensioner will get only 60 per cent of pension every month with DA calculated on the basis of the 100 per cent pension. But after 15 years the full pension will be restored.

If the pensioner reaches 80 years of age, he/she will get an additional 20 per cent pension, at 85 years, 30 per cent, at 90 years, 40 per cent and at 95, 45 per cent. If the pensioner turns a centenarian, he/she will get 100 per cent additional pension, that is, their original pension will double.

Elangovan said that after the Soviet Union disintegrated in 1990 and socialism was regarded a fiasco, it was a shot in the arm for capitalists all over the world who then started making onslaughts on the salaries and pensions of workers.

In India, the pension scheme which had been non-contributory in nature became a defined benefits contributory scheme. Way back in 1995, the Congress-led UPA government brought in EPS, Employees’ Pension Scheme. The EPS threw overboard the old method of calculating pension at 50 per cent of pensioner’s last-drawn salary. Instead it brought in a new system of pension calculation.

Whatever one’s salary, only Rs 6,500 (later, the cap was raised to Rs 15,000 in 2014) was taken into account and 8.33 per cent  from the salary deducted towards pension. The total amount thus accumulated over the years would be multiplied by the number of pensionable service years and divided by 70. The figure thus arrived would be the pension. That was the formula according to the EPS. Besides, there is no DA in pension.

It is quite obvious that the new pension will be nowhere near the old pension calculated at 50 per cent of one’s last-drawn salary. Moreover, the new pension scheme has no room for family pension by which, after the death of a pensioner, one’s spouse would get half of the pension.  Now, after the pensioner’s death, the government has no pension liability. So, it boils down to the fact that the remaining portion of money one saves up throughout one’s career under EPS will go to the government. Besides, the old system had a fixed minimum of Rs 9,000 as pension, which is not the case with EPS either.

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So, it is very clear that EPS gives you only a meagre amount as pension, said Elangovan, adding that a woman employee in Mumbai gets only Rs 23 (just 23 rupees) under EPS. There are 68 lakh subscribers enrolled in EPS who will get, at the most, Rs 3,000 as pension. The actual pension ranges between Rs 200 and Rs 3,000.

Of course, EPS has a higher pension facility — a joint option with one’s employer under which 8.33 per cent is deducted from one’s actual salary. But those who have already retired have to remit a higher amount under EPS by way of back payments to get the higher pension.

But this seems impossible as this demands production of certain documents. Will the retirees take the trouble to have a joint option with their employers and pay the outstanding amount towards pension subscriptions? So, the higher pension option looks more like a pipe dream, Elangovan said.

The BJP government went a few steps ahead of the Congress in discontinuing the old pension scheme, and brought in a new pension scheme on April 1, 2004. According to the new pension scheme, which is not a ‘defined benefits’ scheme and more a contributory one in nature, 10 per cent is deducted from an employee’s salary and 10 per cent is contributed by the government. The money thus saved up is invested in equities, private bonds, annuities and debt funds. But returns on these investments are uncertain. The PF Act 20 (G) very clearly points this out, said Elangovan.

Elangovan elaborated how the new pension scheme also known as CPS (Contributory Pension Scheme) was against the interests of workers. He pointed out that Tamil Nadu government employees are aware of the risks of CPS and want the government to restore the old pension scheme following the example of Rajasthan, Chhattisgarh and West Bengal.

Several parties ruling in the States promised to reintroduce old pension, such as Kerala, but have not done so. In Tamil Nadu, the DMK should have reverted to Old Pension but the Finance Minister PTR is not moving on this, and instead wants to hand over the pension corpus to the Centre.

There is steam gathering all over the country for restoration of the old pension scheme, Elangovan said, adding that the opposition to the new pension scheme is mounting fast.

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