Summary of this article
The All India NPS Employees Federation has urged the 8th CPC to shift from a market-linked National Pension System to an assured pension.
Citing volatility and inadequate corpus growth, it proposes a guaranteed minimum of 50 per cent of the last drawn basic pay plus DA.
According to the federation, this is especially to protect lower-level and short-service employees from meagre pensions as low as Rs 300.
Considering the ongoing volatility in the market and the fact that the National Pension System (NPS) is a market-linked product, the All India NPS Employees Federation (AINPSEF) has proposed a fundamental shift in the pension payment mechanism.
With a significant number of employees set to retire in 2033, employee bodies are ramping up pressure on the 8th Central Pay Commission (CPC) to overhaul the pension framework from being market-linked to an assured amount. The core of the issue lies in the market fluctuations and downturns at the time of retirement that can negatively affect the retirement corpus, contributed over the years by the subscribers.
In the formal memorandum, the AINPSEF has proposed to the 8th CPC a minimum assured pension of 50 per cent of the last drawn salary and dearness allowance (DA). The proposal seeks to address the concern of moderate growth in the corpus, observed by many of the employees. According to the federation, the growth is not keeping pace with inflation, and thus, it has proposed an assured pension.
At present, central government employees contribute 10 per cent of their basic pay and DA, whereas the government contributes 14 per cent.
The AINPSEF proposal is an amalgamation of the NPS and the old pension scheme (OPS). Under this model, the federation proposes that the government retain its 14 per cent contribution and guarantees a pension from the treasury, instead of investing its 14 per cent contribution in the market-linked instrument. According to it, this system would be sustainable for the state and, at the same time, would provide social security to the workforce.
The Federation’s primary concern and the grievance is that the NPS model offers reasonable results only to those with over 30-35 years of service. But, for those with shorter service or who worked at a lower level (level 1 – level 5), such as Railway staff, teachers, and daily wage workers, whose jobs were regularised late in their careers, the current system is not useful. In some cases, their monthly pension in the current system is around Rs 300-3,000, which is not an adequate amount for them to even survive.
The federation also provided a projection for a Level 7 employee, who is going to retire in June 2043, after completing 33 years of service. Under the existing system, the corpus of such an employee would be around Rs 3.13 crore, including Rs 1.30 crore employee share and Rs 1.82 crore employer share. The AINPSEF has suggested that if the government takes back its Rs 1.82 crore, it can easily fund a monthly pension of Rs 2.15 lakh, including the projected DA.
The federation said the current model is a one-way fiscal outflow for the government, in which employees are left to the whims of the stock market. However, in the assured pension model, the government can create a financially sustainable model that will also protect the middle and lower-income workers from the negative market returns.
What is the AINPSEF's proposed pension model?
AINPSEF proposed an assured pension model where the government’s 14 per cent contribution is advised to be retained and used to give an assured pension.
How would the 50 per cent assured pension be calculated?
The federation proposed it to be 50 per cent of the last drawn basic pay plus dearness allowance (DA).
Why do low-pay employees receive such small pensions?
According to the federation, the lower-paid employees or those with shorter service will not have the chance to accumulate sufficient corpus to sustain their time in retirement.
