Fin Min constitutes panel to improve pension benefits for Govt staff

After the announcement last month by Finance Minister Nirmala Sitharaman to form a panel to review the pension system for government employees, the Finance Ministry Thursday set up a four-member committee headed by Finance Secretary T V Somanathan. It, however, did not specify any timeline for the submission of the recommendations by the committee.

As per its terms of reference, the committee will suggest whether any changes are warranted given the existing framework and structure of the National Pension System (NPS), also called the new pension scheme, as applicable to government employees.

The committee will also suggest changes with a view to improving the pensionary benefits of the state and the central government employees covered under NPS ensuring that fiscal prudence is maintained to protect ordinary citizens, an office memorandum issued by the Department of Expenditure said.

The committee, to be chaired by Somanathan, will also have the Secretary, of the Department of Personnel and Training (DoPT); the Special Secretary, of the Department of Expenditure; and the Chairman of the Pension Fund Regulatory and Development Authority (PFRDA) as its members.

Last month, Sitharaman, while speaking in the Lok Sabha during consideration of the Finance Bill, 2023, announced the formation of a committee to look into improving the system of pension for government employees — a move that comes against the backdrop of at least five Opposition-ruled states adopting the Old Pension Scheme.

The tussle between OPS and NPS has become a political hot-button given that this is an election year and Opposition-ruled states Himachal Pradesh, Punjab, Rajasthan, Chhattisgarh and Jharkhand have reverted to the Old Pension Scheme (OPS), which offers defined benefits.

In fact, last month, the BJP-Sena (Shinde faction) government in Maharashtra also gave its in-principle approval to extend monetary benefits of OPS to those under the NPS, with the state government likely to increase its share in the new scheme from 14 per cent to 20 per cent.

At present, while the employee contribution to the scheme is 10 per cent, the government contribution stands at 14 per cent.

Under the NPS, which covers employees who joined service post-January 2004, contributions are defined but benefits depend on the market.

In March, the Central government informed Parliament that it is not considering any proposal to restore OPS regarding its employees recruited after January 1, 2004.

The Centre, however, allowed a one-time option to a section of government employees to shift to OPS whose posts were advertised before the notification of the NPS in December 2003. Under the OPS, retired government employees get 50 per cent of their last drawn salary as a monthly pension and the amount keeps increasing with hikes in dearness allowance rates.

The Central Government had introduced the NPS with effect from January 1, 2004, except for the armed forces. High pension payouts add to the burden of the exchequer and have fiscal implications, which was also pointed out by the Government in the recent hearing related to One Rank One Pension in the Supreme Court.

In January, the RBI had cautioned states against reverting to the OPS stating that it will add to their fiscal burden.

“The annual saving in fiscal resources that this move entails is short-lived. By postponing the current expenses, states risk the accumulation of unfunded pension liabilities in the coming years,” the RBI had said.

In February, The Indian Express had reported that Finance Ministry officials are exploring a model that combines elements of OPS and NPS, proposed by the YSRCP government in Andhra Pradesh.

As per the proposed pension model in Andhra Pradesh, called the Guaranteed Pension Scheme or GPS, employees can get a guaranteed pension of 33 per cent of their last drawn salary if they contribute 10 per cent of their basic salary every month which is matched by a 10 per cent contribution by the state government. They can get a guaranteed pension of 40 per cent of their last drawn salary if they are willing to contribute a higher 14 per cent of their salary every month, which will be matched by a 14 per cent government contribution.

As per the Budget estimates for 2022-23, states are expected to incur a 16 per cent rise in pension expenditure at Rs 4,63,436 crore in 2022-23 as against Rs 3,99,813 crore in the previous year.