Tuesday, November 5, 2013

Truth about pension in organized sector


It is the general understanding in public that Pensioners’ in the organized sector (i.e C.G., State Govt , Local bodies, PSUs & industries) are  well off . Very few in general public may be aware that over 28lac pensioners in organized sector get less than Rs 1000/ PM as pension.


Let us first understand what is Pension :
Pension weather contributory or noncontributory is a Social security tool. Thus the amount of Pension has be linked with sustainability & the right to live with dignity .
Pension as per Article 366 (17) of the Constitution of India; means a pension, whether contributory or not, of any kind whatsoever payable to or in respect of any person, and includes retired pay so payable, a gratuity so payable and any sum or sums so payable by way of the return, with or without interest thereon or any other addition thereto, of subscriptions to a provident fund.


Pension as described in section 60 of the CPC and section 11 of the Pension Act. :


There are three important features of ‘pension’. Firstly, pension is a compensation for past service. Secondly, it owes its original to a past employer-employee or master-servant relationship. Thirdly, it is paid on the basis of earlier relationship of an agreement of service as opposed to an agreement for service. This relationship terminates only on the death of the concerned employee.
Pension is an area where clarity of vision is often obscured by ill- considered notions. However, the Supreme Court of India has, in the landmark judgement of D.S. Nakara and others vs. Union of lndia (AIR 1983, SC 130) clarified all the issues connected to pension
While examining the goals that a pension scheme should seek to sub-serve, the Apex Court held that,"A pension scheme consistent with available resources must provide that the Pensioner would be able to live :
(I)                free from  want, with decency, independence and self respect and
(II)             at a standard equivalent at pre retirement level
The Court observed “We owe it  to the pensioners that they Live, not merely  exist”The Court held that pension is neither a bounty nor a matter of grace depending upon the sweet will of the employer It is not an ex gratia Payment, but a payment for past services rendered. It is a social welfare measure, rendering socio-economic justice to those who in the heyday of their life ceaselessly toiled for the employer on an assurance that in their old age they would not be left in the lurch
The Vth CPC in their report commented “It needs to be averred emphatically that pension is not in the nature of alms being doled out to beggars. The senior citizens need to be treated with dignity and courtesy befitting their age. Pension is their statutory, legally enforceable right and it has been earned by the sweat of their brow. As such it should be fixed, revised, modified and changed in ways not entirely dissimilar to the salaries granted to serving employees”
officially . In organized sector two types of Pension schemes are prevalent i.e. 1.Non- contributory (i.e. defined benefit) 2.Contributory.(i.e. defined Contribution)
Let me first tell you about so-called non-contributory Pension Scheme for govt. employees:
An employee in the organized sector covered by so called non- contributory Pension scheme in fact during his hey days contributes to his old age security in three ways i.e
1.By tirelessly toiling, for the development of the country during the entireperiod of his/her productive years.
2.By accepting Lower salaries. As salaries of pensionable employees are by design kept on lower level:.In the context of Civil Servants Pension payments,  the principal guiding the fixation of pay package is one intentionally spreading out the compensation over long period of time, whereby the wages paid out during the work tenure is kept low by design and pension payments during the retirement phase compensate for the low wages. (This has come out in studies got conducted by Central Pay commissions.)
3. By foregoing every month with interest the matching contribution by employer to his/her PF( which is to the tune of 8.33To 10% of his/her monthly emoluments)
Therefore, it is a big lie to say that pension system in vogue in organized sector In India, is the defined benefit i.e the system is essentially non-contributory in nature and any particular year’s pension liabilities are met from the government’s annual revenue expenditure account for that year.
In-fact, Government is trying to shy away from paying us adequate  pension & medical bills, because it is wasting tax  payers money & Pensioners’ contributions on subsidies, populist schemes & Scams.
The Scheme of payment of pension was introduced: as it was greatly advantageous to the government.
         (i)Government saved thousands of million by stopping matching contribution to provident fund.
          (ii)One third the commuted part of pension was permanently retained by the government, till 1986 . Even after 1986 in restoring the commuted portion after 15years, Govt. retains the substantial balance with itself ( As per calculations the amount commuted would be got back by the government in  ten years)
        
         (iii)Due to delayed payment of arrears Govt. retains millions of rupees on a/c of death of pensioners/family pensioners during the intervening period. Thus enormous amount of money has been with the government for very long period. Had the government created a corpus out of these savings & invested properly, today pension would not have been a burden  
Every time when pay commission is constituted or pay commission recommendations are implemented Media creates a big hype of financial burden.
Let’s see what actually the pay commissions have been giving to aam  pensioner : Existing Basic Pension+ DR + Squeezed portion of DR as fitment benefit. Yes the squeezed portion of DR as DA/DR paid is never sufficient to take care of inflation.
In fact there is no disruption of  finances on account of increase in salaries/pensions due to pay commission recommendations. Pay Commis­sions are constituted once in 10 years and the government is made to effect  in­crease in salaries of its em­ployees at the end of 10 years as the dearness allowance (DA/DR) does not adequately take care of inflation. So at the end of 10 years, the government is benefitted from a squeeze in real pay/pension because the DA was nev­er enough...So you have a increase (Montek Singh 27.02.2008)
Ours is a socialist country where in difference between haves & have nots should go on reducing progressively But Pay commission after pay commission has been shredding this basic fiber of socialistic state. In-fact every pay commission has been bestowing more & more benefits to serving & ex Senior Bureaucrat compared to other  employees & Pensioners The Sixth Central pay Commission created major discrepancy by raising the pay & pension of  Senior  Bureaucrats i.e. IAS & equivalent by  3.37 times & in their case  in the name of  parity  Pre & post 1.1.2006 pensioners have been brought  at par while   same benefit  to all other pensioners. As a result
even after retiring   from same post, same rank, same pay, with same length of service & same seniority  there is now a difference in pension of pre & post 2006 retirees ranging from few hundred to few  thousand per month. leaving the poor lot crying for parity.
Remedy:
Govt.should honor in letter & spirit the Supreme Court landmark judgement of D.S. Nakara and others vs. Union of lndia (AIR 1983, SC 130) and should not adopt differential formulae on the basis of date of retirement in revising Pensions of its past employees.
Now coming to contributory Pension Schemes   (1) EPS 1995 i.e. Employees Pension Scheme 95: (defined Contribution)
Today over 41 lac   beneficiaries of this scheme are miserably suffering.You may be stunned to know that there are pensioners in this country who get as little a pension as Rs4/- per month .out of over 41lac EPS 95 pensioners.18.7 lac pensioners   get less than Rs 500 per month & as low as Rs4/ per month, while about 15 lac of these pensioners get pension ranging between Rs 500 and Rs 1,000. Only about 7.3 lakh of these pensioners get a pension of more than Rs 1,000.
These are the workers who toiled in 186 industries during the entire productive years of their lives for development of this country and who have been ditched by the employers & the Govt. during their sunset years.
These pensioners before retirement held RESPECTABLE POSITIONS in society as BREAD WINNERS of the family..Their EARNINGS were sufficient enough to maintain a STANDARD OF LIVING according to their status. Suddenly on retirement they became PAUPERS due to the apathy of Govt& the employer.
Let us see how does  EPS 95 work ?
        As per the EPS, 1995, the employer needs to contribute 8.33% of the salary of the worker. But usually the employer contributes only up to Rs 541 per month i.e. 8.33% of Rs 6,500, (irrespective of  employee’s salary,)  to employee’s EPS account. That is because according to EPS 1995, the maximum pensionable salary is restricted to Rs 6,500/, Govt. contributes 1.16% of employee’s salary which is subjected to the maximum of Rs 6500 for this purpose.Thus Govt. contributes only up to Rs75/per month.Beneficiary are entitled to pension under EPS when he/she turn 58 years' of age and after 10 years of continuous service. Since EPS is a defined contributory pension product, the amount of pension the beneficiaries  get depends upon a fixed formula, which is average monthly salary of the last year of service multiplied by the number of years of service divided by 70.
If this  moneyof contribution  with interest, is annuitized at the current rates offered by the Life Insurance Corporation, the amount would generate a lifelong monthly pension of Rs 8,242
Whereas In the year 2012 there were 40,00000 pensioners under this Scheme, theCorpus was 1,62,980Crores of Rupees, interest earned on which was 13,315.79 crores, the amount available per pensioner was Rs 2774/-but the pensioners were paid a pension of Rs4/ to 1900.Not a single pensioner received Rs 2774/- {28 lakh got less than 1000)
What is happening ,.
GOVERNMENT IS STARVING THE FUND :
• Not paying interest at par with provident fund
• A ceiling on salary at 6500/, results into less contribution to pension fund
• This gives concession to employers (an amount of 8.33% of salary employers up to 6500/i.e only Rs 541/ max. PF contribution is diverted to Pension Corpus)
• Also gives concession to Government ( contribution 1.16% of salary upto 6500/)
• Workers up to 20 in private and 50 in cooperative exempted from scheme
EMPLOYERS ARE STARVING THE FUND
• Less salary, more perks
• Keep members unregistered by avoiding names in Muster rolls to get exemptions
• Unregistered contracting out sourcing of regular work to get exempted.
Remedy:
Bharat Pensioners Samaj finds that still the Scheme is not going in Loss and that Rs 3500/-PM pension is possible with the available resources. REMOVAL OF SALARY LIMIT OF RS 6500/ & WITH EQUAL CONTRIBUTION of 8.33%FROM MANAGEMENT &THE
GOVT. Situation will improve many folds.
2.NEW Pension Scheme( NPS):The latest defined contributory Pension Scheme which is compulsory for all who have & would join Govt. service on & after 01.01.2004 The monthly contribution would be 10 percent of the salary + DA to be paid by the employee and matched by the Central Government: The Finance Ministry has said that  the NPS scheme provides better returns than EPS-95 run by the Employee's Provident Fund Organisation (EPFO) . However, It does not guarantee payment of even a penny as  monthly pension & even  Employee's own contribution is not secured.There is no provision of pension to dependents other than the spouse at the time of retirement.
Remedy : NPS for Govt. employees  should be Scraped & the existing provisions of defined benefit pension and GPF be restored .

S.C.Maheshwari

Secy. Genl. BPS



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