New Pension Scheme Debate to benefit TRS : Vanam Jwala Narasimha Rao

New Pension Scheme Debate to benefit TRS

Vanam Jwala Narasimha Rao

The Hans India (29-10-2017)

A debate on the Contributory Pension Scheme (CPS) in the State Assembly would turn out to be an opportunity for the ruling TRS party rather than the Congress, which included this as one of the 18 and odd subjects to be taken up for discussion in the House. If one browses over the need, concept and evolution of CPS, it would be noticed that, this was first implemented by the erstwhile Congress regime. The CPS is being implemented covering about 1.25 lakh employees who joined service after 2004 and the State government is making its part of contribution. There is adequate budgetary allocation too. There is no reason why Congress should resort to demanding a discussion on this against this background.

The then Prime Minister Atal Bihari Vajpayee announced the scheme as part of his budget speech for 2001-2002. He envisaged a new pension scheme based on defined contributions for new recruits entering Government Service after October 1, 2001. The reasons given were that the Central Government Pension liability reached unsustainable proportions. The Centre constituted a committee under senior a IAS officer Bhattacharya, to study the issue and the new pension scheme came into effect on December 22, 2003 basing on the recommendations of the Central panel. The states also accepted the scheme facilitating its implementation all over the country, barring perhaps West Bengal and Tripura.

In sequel to this, the then Government of Andhra Pradesh, sought a report on “pension scheme valuation, funding and rationalization of pension system” from a private agency which submitted its report to the Government. The same was referred to the Cabinet Sub-Committee in 2003 November. The report observed that the expenditure on pension has been increased multi dimensionally which would be unsustainable. The liability projections made then proved to be correct. For Telangana alone after bifurcation of the State it amounted to over Rs. 10, 000 Crores in the year 2016-17.

Since the then Government of Andhra Pradesh had already accumulated large pension liability it was suggested that there was an urgent need for shifting from the existing “Defined Benefit System” to “Defined Contributory System”.

Government of India introduced Contributory Pension Scheme in January 1, 2004. The then, Congress Government adopted the same to its employees of AP with effect from first September 2004 on the lines of Government of India and issued guidelines for implementation of the Scheme. It was made mandatory for each employee who is recruited on or after first September 2004 to become members of the Scheme. Each employee shall pay a monthly contribution of 10% of Basic Pay and Dearness Allowance from his salary to the Contributory Pension Scheme and a matching contribution will be made by the State Government.

Subsequently Parliament enacted Pension Fund Regulatory and Development Authority (PFRDA) Act in 2013.  The Central Government has also constituted the PFRDA to act as a regulator for the pension sector and to protect the interests of subscribers to schemes of pension funds and for matters connected therewith or incidental thereto. As such, as a regulator of New Pension Scheme, the PFRDA envisaged CPS architecture which consists of all the Nodal offices and intermediaries.

The contribution recovered from the salary of the employee every month, along with Government contribution will be adjusted and transferred to Pension Fund Regulatory Development Authority on monthly basis. In the new pension scheme the total employees including State Autonomous bodies are 1,25,190 and they are being covered in the State of Telangana.

The features of CPS are very interesting to note.

The contributions and investment returns would be deposited in a “non-withdrawable pension tier-I account”. At the time of retirement, the employee would be required to invest 40% of his accumulated Pension wealth to purchase an annuity which will provide Pension for life time to the employee and in the event of his death to his dependent Parents/Spouse. The remaining 60% pension wealth would be paid to the employee at the time of his retirement to utilize in any manner. This 40% investment would be paid to the legal heirs once the Family ceases.

In addition to the above pension account, everyone may also have a “voluntary tier-II withdrawable account” at his option. This option is given as there is no GPF account for CPS employees. Government will make no contribution into this account. These assets would be managed exactly through the above procedures. However, he would be free to withdraw part or all the ‘second tier’ of his money anytime.

There is not much of a difference in terms of benefit to the employee regarding old Pension Scheme and New Pension Scheme as far as the terminal benefits in monetary terms are concerned like commutation and gratuity or wealth accumulated.