IS PENSION UNDER CCS (PENSION) RULES 1972 TO THE NPS
About the feasibility
ALL INDIA POSTAL AND RMS PENSIONERS’ ASSOCIATION
ORGANISING SECRETARY, CHQ,
CONVENOR, CENTRAL, STATE, LOCAL BODIES AND PUBLIC SECTOR PENSIONERS’ FEDERATION, TIRUNELVELI
I am a postal pensioner. I have put in 33 years of service as Lab Technician, Postal Dispensary, Tirunelveli 627001, in Tirunelveli postal division of Tamilnadu circle. Presently I am the secretary of the All India Postal And RMS pensioners Association, Tirunelveli and organizing secretary, CHQ. Also, I am the Convenor, Central, State, Local bodies and Public sector pensioners’ Federation, Tirunelveli.
Everybody fights against this NPS within their ability. The Trade Unions, Pensioner’s associations took it seriously and continue their battle against the government. In this Herculean task, I wish to share the following for your consideration and to take the case at appropriate forum.
The 7th Central Pay Commission has not made any specific recommendations with regard to NPS, but let it to be decided by the government. The government, in turn formulated a committee to consider this issue. Under these circumstances, I took this opportunity to submit my ideas.
I took this opportunity of submitting this article about the feasibility of extending the CCS (Pension) Rules 1972 to the government servants who are covered under New Pension Scheme, with effect from 1.1.2004. You may be more informative about the aspects and dangers of the introduction of the NPS .
The details of the NPS and its impact on the future pensioners have already been discussed and written elsewhere and almost nothing left. In this article I want to submit the negative aspects of the NPS and I try to make an alternative study about the investment of the contributions. The government shows its intentions to provide a social security in the form of a monthly pension to all the Indian Citizens, by introducing the Atal Pension Yojana scheme. At the same time it turns a blind eye to the claim of the NPS subscribers, especially the government servants joined service on or after 1.1.2004 for the benefits under CCS (Pension) Rules 1972. It is noteworthy that the reasons for the social security of the citizens in the words of the government are squarely applicable to these government servants also.
The government introduced this NPS, citing pension, especially the pension under CCS (Pension) Rules 1972 as a financial burden to the government and also stating it widens the fiscal deficit. On the contrary it introduces pension schemes to the citizens of India and conducts intensive mobilization towards it. The scheme, Atal Pension Yojana, introduced by our Honorable Prime Minister is a fitting example. From this it is clear that the government is committed to provide a social security to the population, especially to the unorganized sector, by way of a assured monthly pension. At the same time it is not ready to consider the request of its employees for a defined pension under the old pension scheme.
The government has the duty and responsibility to assure its pensioners a decent and dignified retired life. The government cannot escape its responsibility by stating it is a financial burden or fiscal deficit. The Supreme Court in its landmark judgment in D.S.Nakara & others vs. union of India, 1982 categorically stated that pension is a right. The government wants to discharge its duty and responsibility for pension just by introducing this NPS, offering a contribution on its behalf and left all other things to be decided by the market. I wish to stress that the government is prepared to pay 10% contribution to this NPS as matching.
This article is about the study of this 10% government contribution into well- established schemes and to see its growth. From this study I came to the conclusion that the growth of this government contribution alone is more than enough to extend the benefits under CCS (Pension) Rules 1972. In fact, the extension of old pension rules is cheaper than this contribution.
Let us start my study with the following question.
“For the government, 10% contribution to NPS is possible.
Is it possible to extend the CCS (Pension) Rules 1972 instead of NPS ?
The answer is “possible”.
I request you to kindly go through this, and continue your endeavor to bring back all the government servants covered under NPS to the CCS (Pension) Rules, 1972.
|1||The need for a statutory pension||6-8|
|2||The old pension under CCS(Pension) Rules 1972||9-10|
|3||The New Pension Scheme||11|
|4||Drawbacks of the NPS||12-16|
|5||The expectations of the NPS subscribers||17-19|
|6||Possibilities for defined pension under NPS||20-21|
|7||The alternates and a comparative study of investments|
|A||Accumulations kept idle upto retirement and then invested||24-25|
|B||NPS vs. Pension contributions for foreign service||26-27|
|C||Atal Pension Yojana-a comparison||28-31|
|D||Investment in GPF and PPF||32-34|
|A1||Details of government’s contribution|
|A2||Table of pension contribution for foreign service|
|A3||Table of contributions under APY|
|A4||Table showing the benefits under GPF and a comparative study with APY|
|A5||Affidavit of then Prime Minister|
|A6||Exposure draft of PFRDA dated 17.8.2016|
|A6||Brochure of Atal Pension Yojana|
- THE NEED FOR A STATUTORY PENSION
For a long time, a job under Government is the choice and dream of everyone. This is because of the pensionary benefits, the social security, enjoyed by its employees. A fixed monthly payment is assured by the government which will be paid to the employee on retirement up to life, and to the spouse after the death of the pensioner and after that, to the wards, subject to eligibility.
1.2 Pension is given to the employees considering their services rendered to the government. The considerations for such pension are the earning capacity of the official after retirement, medical expenses, increased cost of living and also social security.
1.3 The Honorable Supreme Court held that pension is a social security measure and is the fundamental right. The apex court in D.S.Nakara & Others Vs. Union of India, 1982 stated that pension is a right; not a bounty or gratuitous payment. The Supreme Court also held that the officials should lead a life what they were enjoying during their service under government.
1.4 After retirement, at the old age they may not be able to earn. It would be very difficult for them to have a good and decent life in their old age. It would be very difficult for them to make both ends to meet after retirement. Human relationship is at the lowest ebb, and nothing could be expected from their wards. If at all they are prepared to help their parents, it may not be possible due to various economical and social reasons. At the old age, in a situation in which the cost of living shoots like a rocket, it would be very difficult, if they are not eligible for a fixed monthly pension.
1.5 The need for pension in the words of the government is,
- Decreased income earning potential with age
- The rise of nuclear family-migration of earning member
- Rise in the cost of living
- Increased longevity.
Assured monthly income ensures dignified life in old age.
(source: Prospectus of AtalPensioYojana)
1.6 Under the ATAL PENSION YOJANA Scheme, the amount of monthly pension is assured, whatever the returns of the scheme. It is stated by the government that “The benefit of minimum pension under Atal Pension Yojana would be guaranteed by the government in the sense that if the actual realized returns on the pension contributions are less than the assumed returns for minimum guaranteed pension, over the period of contribution, such shortfall shall be funded by the government. On the other hand, if the actual returns on the pension contributions are higher than the assumed returns for minimum guaranteed pension, over the period of contribution, such excess shall be credited to the subscriber’s account, resulting in enhanced scheme benefits to the subscribers. “
1.7 As an Indian citizen, the expectations of the government servants covered under the NPS for a pension under CCS (Pension) Rules 1972 is genuine as they are also the citizens of India. The government is expected to provide the means for a decent retired life.
1.8 The government as a model employer has the duty to provide a secured and a decent retired life for its employees and to provide a standard not lower than they enjoyed during their service. As per the CCS (Pension) Rules, 1972, the pension to the retired government servant is subject to future good conduct also. It implies ipso facto that the social security factor for their future retired life too. While it is being so, it is the duty and responsibility of the government to assure that his pensioner has a secured future and decent life, without depending anybody else.
1.9 It is worth to state that our Members of Parliament and also Members of Legislative Assemblies are eligible for statutory pension, even if they were the members for a single tenure. At present our Members of Parliament are eligible for a pension of Rs. 20000 per month for a single term and Rs.1500 per every additional year of office. On the other hand its servants are not eligible for any statutory pension even after their working for more than 30 years for the government.
1.10 It is absolutely right decision that the Armed defence personnel and paramilitary forces are eligible for a statutory pension and NPS is not applicable to them. They deserve everything we have and we can, as their services are superior to any other service. The government, considering the conditions of service and all the odds faced by them, continue them to enjoy the pension.
1.11 Even though it may not be possible to have a comparison between the armed forces and the civil servants, the following things are worth for consideration.
ü The civil servants are also government servants.
ü In fact, they are the faces of the government.
ü They implement each and every scheme introduced by the government, including the social security schemes like APY.
ü They take every scheme to the members of public.
ü They work and make every scheme success and make the government proud of the schemes.
ü They take the government service as an opportunity to serve the nation.
ü They serve the public on behalf of the government.
1.12 In the light of the above, the expectations of the government servants for bringing them under CCS (Pension) Rules 1972 are genuine. An assured monthly income, in the shape of pension, as stated by the government is absolutely necessary for the government employees after retirement, The Honorable Supreme Court in the case of D.S.Nakara& Others Vs. Union of India, 1982, observed that “There should not be any discrimination between pensioners by virtue of their dates of retirement”. Even though the officials started their career in the government on or after 1.1.2004, they are also pensioners on retirement and it is the duty of the government to provide an assured monthly income and to treat them on par with their counterparts entered government service prior to 1.1.2004.
- The old pension under CCS (Pension) Rules 1972
As per the CCS (Pension) Rules, 1972 every government servant is assured of a monthly income in the shape of pension. The amount of pension is decided on the basis of the length of his service and also the pay drawn at the time of retirement. After the implementation of the 6th CPC, it is based only on the pay drawn by the government servant at the time of retirement.
2.2 They are eligible to commute a part of their pension and get a lumpsum commuted value of pension on retirement. The pension is for life and the spouse is eligible for Family pension, on the death of the pensioner. After the demise of the spouse, their wards are also eligible for family pension for stipulated period under conditions. The commuted part will be restored after a period of 15 years from the date of retirement. If the pensioner after receipt of the commuted value of pension dies, no recovery is made from the family pension payable to the spouse/wards as the case may be. Also, on retirement, the government servant is eligible for retirement gratuity based on the last pay drawn and also the length of service.
2.3 In the event of death of the government servant while in service, the spouse and their wards are eligible for Family pension and also for death gratuity.
2.4 The Family pension is based on the pay drawn by the official at the time of death. The death gratuity is based on the length of service of the government servant and also the pay drawn by the servant at the time of death.
2.5 Also, the pension will be revised upon the implementation of pay commissions, in order to maintain uniformity among pensioners.
2.6 All of the above benefits are extended to the government servant on his retirement or to the family upon his death while in service, considering the need of the government servant and his family after retirement or death, in order to save the family from a total collapse. From the above, the care for the pensioner after retirement, social security aspect of the government could be seen. The government wants to ensure a good, decent and secured life for his pensioner, considering the services of the employee to the government.
2.7 All the conditions for the claim for an assured monthly income are still prevailing. The government as a model employer has a duty and responsibility to ensure a secured and a decent life for its employees after their retirement.
2.8 The need for pension in the words of the government is,
- Decreased income earning potential with age
- The rise of nuclear family-migration of earning member
- Rise in the cost of living
- Increased longevity.
Assured monthly income ensures dignified life in old age.
2.9 The above considerations are squarely applicable in case of the government servants covered under NPS. In the light of the above facts, they deserve statutory pension under CCS (Pension) Rules 1972. The government as a model employer has a duty and responsibility to ensure a secured and a decent life for its employees after their retirement. It is a contradiction that the APY subscribers are assured for a monthly pension under this scheme, whereas the government servants who implement this scheme are not eligible for any assured pension.
- The New Pension Scheme
The Government servants appointed on or after 1.1.2004 are coming under New Pension Scheme, which is contributory system by the Government servant and by the Government. In this scheme, even though it is called Defined Contributory Pension Scheme, only the contribution is defined but not the pension. There are two levels, Tier I and Tier II. Tier I is mandatory. Tier II is optional and will be operated on the similar lines of GPF. As per this system, for Tier I, every month, 10% of pay and dearness allowance is to be recovered from the government servant and an equal amount will be contributed by the Government. The contributions are to be invested in various schemes through Fund Managers. The Government servant has the option to elect the mode of investments, and change in the mode also suggested. Members of public can also join this scheme.
3.2 On retirement, 60% of the accumulations will be returned to the government servant and the balance of 40% will be utilized for purchase of annuities. Based on the returns from the annuities so purchased, monthly pension will be paid to the government servant. On the same lines, the spouse will also be paid a pension. Then the pension will be paid to living dependent mother, living dependent father of the subscriber. After the coverage of all the family members as above, the amount in the annuities will be returned to the surviving children or to the legal heirs.
3.3 On the other hand, if the government servant dies while in service or retires voluntarily, 80% of the accumulations will be annuitized and only 20% of the accumulations will be returned.
3.4 As per the New Pension Scheme, there will be no guarantee about the minimum amount that will be paid as monthly pension to the government servant or his spouse, as this scheme is based on market values. Only in this back drop, the government servants expect that they also should be covered by the provisions of CCS (Pension) Rules 1972.
4.The drawbacks of the New Pension Scheme
From past experience, it is ascertained that the investments are not good enough to repay the assured sums. In most of the cases, the investor is unable to get the amount he has invested. This may be due to the fluctuations in share market, the place in which majority of the investments are made. The “RAJALAKSHMI” scheme launched by the UTI is the best example for the failure of such schemes. The worst thing is that the share market is affected by almost every happening in the globe.
4.1 The Government Servant does not know how much amount would be available in the fund at the time of retirement. Even though periodical statements are provided; the amount may vary due to various factors. It is not fixed. The amount changes, depending on the market trend. He could not find the amount in the fund which would be available in future. He may not be able to predict the growth. In the event of any mishap in share market, his accumulation may come down below what was invested by him. This had happened in the share market in the past, many times.
4.2 There is no guarantee either implicitly or explicitly about the minimum amount of pension that will be paid per month, after his retirement.
4.3 As per the scheme, the Government Servant will be paid only 60% of the accumulated amount on his retirement and he does not know, or even he cannot predict the amount he would receive on retirement. He cannot make his future plans.
4.4 The Government Servant does not know how the balance amount 40% would be invested and the return for that amount. In these hard days, the government servants who know their income and expenses in advance are unable make both ends to meet, due to the increased cost of living, medical expenses, cost of education etc. In such a situation, when one does not know how much he will get, per month, cannot make his plans.
4.5Even though the Government servants have option to elect the schemes, change of fund managers etc., 99% of them do not know the A,B,C of investment, especially in share markets. From the past experience it can be said that the investment in share markets is too bad. One cannot make even one third of the amount invested. Investing the amount earned out of sweat and blood in share market is nothing but wasting their money and also making their future dark.
4.6 As per the Exposure draft of PFRDA (Exits and withdrawals under NPS) (first amendment) Regulations, 2016 dated 17.8.2016, the following modifications are suggested.
- In the event of death of the subscriber before the age of superannuation, or voluntarily retires from service, 80% of the accumulation will be invested and only 20% will be paid to the nominee.
- It is also stated in the above that ,
“ provided that for a Swalalamban subscriber the annuity purchased by utilizing the mandatory minimum of eighty percent out of the accumulated pension wealth shall yield at least a monthly annuity or pension of one thousand rupees per month, failing which the entire accumulated pension wealth shall be annuitized in such a manner so as to yield at least a monthly annuity or pension of one thousand rupees and balance if any thereafter shall be paid as lump sum to the subscriber. However, there shall be no implicit or explicit guarantee that the annuity purchased even with entire accumulated pension wealth would yield monthly annuity or pension of one thousand rupee.
4.7 From the above, it could be seen that there is no assured pension in the above scheme. The NPS scheme is unable to guarantee atleast Rs. 1000 as pension on the death of the subscriber even utilizing the entire accumulation. This is nothing but the testimony for the investments in share market. It is noteworthy that the amount paid under the social security scheme, viz. Old Age Pension/widow pension etc. is Rs. 1000. It is ascertained that a pension of Rs. 960 is paid to a NPS subscriber for his service of 12 years under government.
4.8 On the death of the Government servant, the family would be in a deep financial crisis at which time they would require more financial support. But as per NPS, 80% of the accumulation or if necessary the entire accumulation will be annuitized and nothing will be paid to the family. The family would struggle for bread and butter. The family may not be in a position to continue the education of the wards, and in many cases matrimonial arrangements may not be possible. No defined family pension is available under NPS. On the other hand, old pension scheme provide 50% of the last pay drawn by the government servant as family pension on the death of the government servant.
4.9 The Pension Fund Regulatory Development Authority Act (PFRDA) was enacted by the government in 2013. In accordance with the act, the pension funds will be invested in the stock market and the quantum of pension is subject to its growth. It is pathetic that the lives of the retirees would be decided by the bulls and bears of capital market and not either by the government or the government servant.
4.10 The government and the promoters of PFRDA Act argued that the retired employees are to be benefited immensely by the New Pension Scheme as the markets would yield them wealth. But, this wealth perceived is actually market capitalization. Its estimates are just notional. The assurance given by the government during the Standing committee meeting discussions with National JCM held on 14.12.2007 that “for employees who had entered with effect from 1.1.2004 are not likely to be worse off vis-a-vis the current pension system in force as the replacement rate would match to the present one. Thus NPS is a win-win situation for employees and the government”. In reality, one government servant who retired after 12 years of service is being paid a paltry amount of Rs. 960 P.M.as pension from NPS, whereas after the implementation of the 7th CPC, the minimum pension is Rs. 9000+DA with effect from 1.1.2016. In the old pension scheme, the pension benefit was defined and calculated based on the last pay drawn. Apart from this defined pension, the retired employees in the old scheme would also get other benefits like commutation of pension.
4.11 But, under the new pension scheme, only the quantum of contribution is defined and the quantum of pension is completely dependent on the price fluctuations in the market. If the market plunges due to one reason or the other, then the retirees would be losing heavily for no fault of theirs. Stock markets across the world are prone to either manipulation or speculation. The uncertainties deprive the government employees the luxury of planning their retired life, as they become vulnerable to the peculiar behavior of stock markets.
4.12 In the old pension scheme, every government servant at the time retirement will be guaranteed a monthly pension, based on the last pay drawn, and hence there is a uniform policy that every government on retirement will get 50% of the last pay drawn as pension. As per the new pension scheme, there is no minimum guaranteed pension and also the amount may vary from person to person. For example, a government servant who retires in the month of April of a year, may get a higher pension based on his 40% accumulations, due to bull market. Another who may retire in the month of May of the same year may not get the same amount due to bear market, even though their contributions in the NPS are identical.
4.13 Also, there is no specific provision about the monthly pension out of the 40% accumulations which will be utilized to purchase annuities. It is not clear whether the pension once fixed on the basis of the annuities purchased with 40% accumulations is fixed or will vary as per the returns on the annuities so purchased. In other words, whether one will get the same amount of pension throughout his life, once it is fixed, based on the accumulations at the time of his retirement or which is also subject to the market risks.
4.14 When the government defended the New Pension Scheme stating that it would yield more returns than the pension obtained otherwise, Members of Parliament asked the government to ensure a minimum guaranteed pension in the PFRDA act itself. The then Prime Minister simply replied how it can be guaranteed as it was dependent on market movements. In fact the PFRDA act inter-alia provides, “there shall not be any implicit or explicit assurance of benefits except market based guarantee mechanism”. It is an irony that the then Prime Minister whose government passed the PFRDA Bill has made all his investments in nationalized banks and Post offices only but not in share markets as per his affidavit filed to the Election Commission of India. (copy of the affidavit enclosed). No more proof is needed for the fact that the investments in share markets are highly risky and has unbelievable behavior. It is almost losing what is invested.
4.15 All the government employees appointed on or after 1.1.2004 are contributing 10 per cent of their pay and DA into the New pension scheme. The government would contribute an equal amount. This money is in the National Securities Depository Limited (NSDL). The fund managers, who operate this fund, are investing the same in the markets.
4.16 Even the Supreme Court held that pension is a social security measure and is the fundamental right. The apex court in D.S.Nakara& others Vs. Union of India, 1982 stated that pension is a right; not a bounty or gratuitous payment.
4.17 Even after 12 years after the introduction of the scheme on 1.1.2004, the minimum pension that will be paid to the subscriber on retirement could not be finalized.
4.18 As an investor, every government servant has the absolute right to know the schemes in which his amount is invested, and more over the assured return after retirement. Also, the monthly pension he is eligible out of the 40% investment.
4.19 From the above, one can conclude that the New Pension Scheme is not at all safe, considering the retirement life of the government servants. No more testimony other than the affidavit of the Ex-Prime Minister is required in support this claim.
5.The expectations of the NPS subscribers
As a pensioner, the expectations of the government employees are nothing but a guaranteed lump sum payment on their retirement and an assured monthly pension, under CCS (Pension) Rules 1972.
5.2 Their expectations are genuine, based on the need for a statutory pension as elaborated in chapter 1. In order to ensure a decent life after retirement, they definitely require a fixed monthly payment to lead their life.
5.3 In majority of the cases, the government servant has to arrange for the marriage of his daughters, to spend money towards the education of his wards, or repayment of the loans he obtained earlier towards education of his wards, his housing needs or the matrimonial expenses. He may have aged parents, dependents whose care are in the hands of the government servant.
5.4 He will be in need of money to meet the medical expenses of his family. It is not out of place to add that nowadays education and medical expenses are rather expensive.
5.5 It may not be possible for him to plan his future when there are uncertainties about the amount he will get on his retirement and also the monthly pension he would get on retirement. He will simply put into darkness without any hope of his future.
5.6 The things are worse for the family of a government servant who dies in harness while in service. Simply his family would have to struggle for their bread and butter and the family will be in streets.
5.7 Even after 12 years after the implementation of the NPS, the scheme is not stabilized. The time-frame within which the amount of 60% or 20% of the accumulations will be paid, is not fixed. The month from which the pension will be paid or the quantum will be paid are not clear.
5.8 It is the responsibility of the government that this should not happen. As an employer, the government is to ensure a decent and dignified living of the government servant and his family, and his family does not fall into a total collapse.
5.9 Also, as an investor, the government servant has every right to know beforehand about the probable accumulations in the fund, also his share at the time of retirement and the monthly pension he would receive, so that he can make his plans in his retired life.
5.10 Introducing a scheme, making the contributions compulsory, investing the amount through the so called fund managers without making any commitment about the return viz. accumulations and monthly pension amount is not under any law. It seems that everything depends on GOD and FATE of the concerned government servant. The future of the government servant is simply left to be decided by the so called fund managers.
5.11 There were and are so many schemes for investments by the government, Public sector undertakings (banks) and also by private sector. The minimum requirements for any scheme are,
- Eligibility conditions to join the scheme
- Minimum and maximum contributions
- Periodicity and mode of contributions
- Total period of the scheme, rate of interest
- The time when the amount will be returned
- How much amount will be returned,(at least minimum)
- The mode of repayment, periodicity of repayment if applicable.
5.12 There may be more conditions for some schemes, but the above are minimum requirement for a scheme, which should be set before launching the scheme.
5.13 But from the documents about New Pension Scheme, the answers to vital questions which will decide and dictate the fate of the government servants are unanswered till time. Their expectations are the minimum guaranteed amount at the time of retirement and also the monthly pension which is payable to him and the monthly family pension which would be payable to the spouse on the death of the government servant. Their expectations are neither very high nor impossible. Their expectations are genuine and the treatment they expect from the government, their employer, on their retirement is genuine and justified.
5.14 The government servants covered under the New Pension Scheme have every right to be brought under the old pension scheme viz. CCS (Pension) Rules 1972, so that they also get the pensionary benefits on par with their counterparts who joined the government service prior to 1.1.2004.
5.15 As per the judgment in D.S.Nakara’s case, there should be no discrimination between pensioners based on their date of retirement. It is ipso facto implying that there should be no such discrimination based on their date of joining in the government service, neither. It is the duty and responsibility of the government to see that there is absolutely no discrimination among pensioners based on anything. The government should see that all its pensioners are extended the same type of benefits and the same consideration and treatment are given. The government is expected to consider their plight and to see that their expectations are fulfilled so that they have a decent retired life.
- The possibilities for defined pension under NPS
As discussed earlier, as per the New Pension Scheme, there is no guaranteed minimum amount of pension either implicitly or explicitly.
6.2 If we make a comparative study of the investment of the government’s contribution to the NPS in markets against the investment of this contribution in other well established schemes, we can conclude that it is possible to extend the CCS (Pension) Rules to those covered under NPS.
6.3 If the contributions are invested in a systematic manner, in well-established schemes, the benefits are more than the entitlement under CCS (Pension) Rules 1972. We can conclude that the extension of CCS (Pension) Rules to those covered under NPS would be cheaper comparing to the government’s contribution in the NPS.
6.4 If we consider the interest rate applicable to General Provident Fund, for the contributions of government alone, it is possible to extend the benefits under CCS (Pension) Rules 1972.
6.5 We can consider various possibilities of investing the monthly contributions to various schemes, which are well established, secured and which guarantees for returns at-least the minimum returns. The schemes are like General Provident Fund, Atal Pension Yojana, deposits in nationalized banks etc. which are schemes of the government of India.
6.6 The government of India has the capacity to pay interest for those schemes as it could be seen that mobilization is going on for those schemes. The members of public are constantly encouraged to join such schemes and intensive campaigning is going on.
6.7 Also, the government has the intention to provide all citizens, whether in organized sector or unorganized sector, to provide a pension in order to have its citizens a decent and dignified life at their old age. This could be seen from the brochure for Atal Pension Yojana. The government is even prepared to contribute in this venture.
6.8 The NPS subscribers, the government servants joined service on or after 1.1.2004 also expects the same social care for their retired life. There is nothing wrong with their expectations and it is genuine.
7.The alternates and a comparative study of investments
In the subsequent discussions, the following assumptions are made.
- The pay matrix introduced by the 7thCPC is considered for this study.
- The pay corresponding to the GP 2400, now level 4 in the pay matrix is considered.
- It is assumed that the government servant joined in level 4 at the entry level and has got MACP I, II and III on completion of 10, 20 and 30 years’ of service respectively. The fixation on MACPS is done as per CCS (RP) Rules 2016.
- The rate of dearness allowance after 1.1.2016 cannot be predicted. As such, the rate of dearness allowance effective from 1.1.2006, as per the 6thCPC is taken as reference. It is justified since, the DA rates start from 0% on 1.1.2006 and had reached 132% on 1.7.16. After the implementation of the 5th CPC with effect from 1.1.1996, the rates start from 0% on 1.1.1996 and had reached 117% on 1.1.2006. The rate of DA is almost similar.
- Since the maximum rate of DA is 132% as on 1.7.2016, the DA beyond that level is assumed to be the same i.e. 132%. For an alternate calculation, a uniform rate of 5% on 1.1. and 1.7. beyond 132% is assumed.
- The implementation of future pay commissions has not been taken into account.
- The government’s contribution alone is taken into consideration.
- The total service of the government servant is assumed to be 30 years, after which he retires from service on superannuation.
- For calculation of benefits under APY, the age of the government servant on the joining of the scheme is taken as 30 years, and the pension as Rs.5000.
- For the comparison with pension contribution for foreign service, the rate after the implementation of 7thCPC is not available. As such the rates after the implementation of 6th CPC is taken for this purpose.
- Age of the government servant at next birthday will be 61 and the commutation factor is 8.194 . As the pay drawn by the official at retirement is Rs.62200, the commuted value of pension comes out to be Rs.1235000.
- The pay of the government servant at the time of retirement is Rs. 62200 in level 7 of the pay matrix.
- The monthly pension under CCS (Pension) Rules, 1972 comes to Rs. 31100 per month.
- The monthly family pension at normal rate is Rs. 18660 and at enhanced rate is Rs. 31100
- The interest rate for the investments of the accumulations after retirement is assumed to be 7.1% which is justified and reasonable. This rate is arrived at on the basis of the benefits available under Atal Pension Yojana. As per this scheme, the contributions grow at the age of 60 of the subscriber to 1.7 lakhs for a pension of Rs.1000 per month and proportionately for higher pension up to 5000 per month, i.e. to 8.5 lakhs for a pension of 5000 per month. The monthly pension is paid by investing the corpus amount ranging from 1.7 lakh to 8.5 lakhs. In this case, the interest is worked out to be 7.1%, which is justified and reasonable.
7.A. The accumulations kept idle up to retirement and invested thereafter.
In this case, it is assumed that the government’s contributions are kept idle without investing in any scheme. The total accumulations upon his retirement are invested in schemes which yield defined rate of interest. A wide range of interest rates from 4% to 8% including 7.1% are considered. The government servant at the time of retirement on superannuation is in receipt of pay of Rs. 62200. His pension on retirement under CCS (Pension) Rules 1972 would be 50% of last pay drawn i.e. 31100. The study is aimed about the possibility of monthly pension as per old pension rules. The total accumulations of the government contributions on retirement of the government servant work out to be Rs. 3073790.
7.A.2 The following table will provide the different amount that could be paid as monthly pension.
|Total of the government’s contribution||Interest rate||Monthly interest|
7.A.3 As already stated, the entire contribution is kept idle and not invested in any scheme. The entire amount is assumed to be invested only after retirement. Also the Dearness allowance is taken as constant at 132% beyond 10 years. Even then, the government’s contribution alone can fetch an interest of Rs. 18778 at 7.1% per annum. If the actual rate of DA and the consequent increased contributions are taken into account, the payment of monthly pension of Rs. 31100 is possible.
7.A.4 On the other hand if the monthly contribution of the government is assumed to be invested in ordinary post office savings account at 4% interest. The following table provides the different amount that could be paid as monthly pension. The total accumulations of the government on retirement of the government servant work out to be Rs. 5262325.
|Total of the government’s contribution||Interest rate||Monthly interest|
7.A.5 From the above, it could be seen that if the monthly contributions of the government are assumed to be invested in ordinary savings account at 4% interest, the monthly interest works out to be Rs. 31135, whereas the monthly pension payable under CCS (Pension) Rules 1972 is Rs. 31100. Also the Dearness allowance is taken as constant at 132% beyond 10 years. Even then, the government’s contribution alone can fetch an interest of Rs. 31135 at 7.1% per annum. If the actual rate of DA and the consequent increased contributions are taken into account, the payment of monthly pension of Rs. 31100 is possible.
7.B. A comparison between subscription to NPS and Pension contribution for foreign service.
As per the fundamental and supplemental rules, any government servant who is on Foreign Service is to pay the Pension contribution and also the leave salary contribution, during the period of Foreign Service.
7.B.2 This is because; the official is actually working for the foreign employer and receives his pay from that employer. At that same time, his services are counted for pension in the parent department. The parent department has to pay the pensionary benefits to this employee on his retirement, for this service also. For this counting of his foreign service towards pension by the parent department, he has to pay pension contribution. The rate of this contribution is fixed as a percentage of his pay, including grade pay and this amount is to be recovered by the foreign employer and remitted to the parent department, on monthly basis. This rate of ranges from 6 to 18%, for Group C official, based on the service of the official.
7.B.3 It is added that during the foreign service, the due promotions in the parent department will be offered and the enhanced contribution will be received by the parent department.
7.B.4 Even though the official on foreign service contributes nothing to the parent department, just because of the payment of pension contribution, his services are counted towards pensionary benefits, considering his lien in the parent department.
7.B.5 On the other hand, the services of the officials covered under New Pension Scheme, is not taken as pensionable service under CCS (Pension) Rules 1972, even though these officials work for the parent department full time.
7.B.6 In this section the government’s contribution towards NPS is compared with the pension contribution for foreign service. Here are the compared figures
|Total pension contribution for foreign service (30 years)||Government’s contribution to NPS|
|Rs. 1854336||Rs. 3173790|
7.B.7 From the above it could be seen that the government’s contribution alone to the NPS is about 71% more than the pension contribution of the official who is on foreign service. For those officials who are on foreign service, even though they are working for the foreign employer, based on their pension contributions alone the foreign service is counted as pensionable service under CCS (Pension) Rules 1972.
7.B.8 In the same manner, the services of the officials under NPS may be counted as pensionable service under CCS (Pension) Rules 1972, considering the government’s contribution to NPS.
7.B.9 It is concluded that while the foreign service is counted for pension under CCS (Pension) Rules 1972, the government servants covered by NPS deserve pension under the same rules.
7.C. A claim under Atal Pension Yojana
Atal Pension Yojana is a scheme introduced by the government recently. This is a pension scheme for citizens of India are focused on the unorganized sector workers. Under this scheme, guaranteed minimum pension of Rs. 1000 or 2000 or 3000 or 4000 or 5000 per month will be given at the age of 60 years depending on the contributions by the subscribers.
The need for pension in the words of the government is,
- Decreased income earning potential with age
- The rise of nuclear family-migration of earning member
- Rise in the cost of living
- Increased longevity.
Assured monthly income ensures dignified life in old age.
The benefits of the scheme.
7.C.2 The benefit of minimum pension under Atal Pension Yojana would be guaranteed by the government in the sense that if the actual realized returns on the pension contributions are less than the assumed returns for minimum guaranteed pension, over the period of contribution, such shortfall shall be funded by the government. On the other hand, if the actual returns on the pension contributions are higher than the assumed returns for minimum guaranteed pension, over the period of contribution, such excess shall be credited to the subscriber’s account, resulting in enhanced scheme benefits to the subscribers. “
7.C.3 The subscriber is required to pay the contribution depending on the pension amount required and also the age at entry in the scheme. The government will also co-contribute to this subscriber under some conditions.
7.C.4 The state governments can also co-contribute under this scheme to encourage the subscribers to join the scheme and secure their old age. The additional amount co-contributed by the state shall be invested and kept under the same PRAN of the subscriber and remain as an additional wealth of the subscriber till the time of exit. The additional amount may be given to the subscriber as enhanced pension benefit on exit at the age of 60 years.
7.C.5 Upon completion of 60 years, the subscribers will be paid the guaranteed minimum monthly pension or higher monthly pension, if investment returns are higher than the guaranteed returns. The same amount of monthly pension amount is payable to spouse upon death of subscriber. Nominee will be eligible for return of pension wealth accumulated till age 60 of the subscriber upon death of both the subscriber and the spouse.
7.C.6 As per annexure 1 of the scheme, the corpus amount to be paid to the nominee is Rs. 1.7 lakh for a pension of Rs. 1000, Rs. 3.4 lakh for a pension of Rs. 2000,Rs. 5.1 lakh for a pension of Rs. 3000,Rs. 6.8 lakh for a pension of Rs. 4000, and Rs. 8.5lakh for a pension of Rs. 5000.
7.C.7 Since it is mentioned that “Nominee will be eligible for return of pension wealth accumulated till age 60 of the subscriber” it could be seen that the subscription grows to the assured corpus fund on attaining the age of 60 by the subscriber. i.e. the subscription grows to 1.7 lakh, 3.4 lakh, 5.1 lakh, 6.8 lakh and 8.5 lakh in case of pension of Rs. 1000, Rs. 2000, Rs. 3000, Rs. 4000, Rs. 5000 respectively. Also, as the contingency of payment of the corpus may happen at any time after the death of the subscriber and the spouse, the contention that the subscription grows to the assumed corpus is correct.
7.C.8 It is presumed that the corpus fund is invested and the pension is paid monthly on the basis of the returns from this fund.
7.C.9 A subscriber who enters APY at the age of 30 makes a monthly subscription of Rs. 577 and total subscription comes to Rs. 207720, for a monthly pension of Rs. 5000. This subscription grows to a corpus of Rs. 8.5 lakhs on attaining the age of 60 by the subscriber. After payment of the guaranteed monthly pension to the subscriber and to the spouse, the corpus amount of Rs. 8.5 lakh will be paid to the nominee.
7.C.10 In the case of a government servant who enters the NPS at the age of 30 the government makes a total contribution of Rs. 3173790. The APY subscriber gets a monthly pension of Rs.5000 whereas the total contribution is Rs. 207720 only. If we calculate on a pro rata basis on the subscriptions, the government’s contribution of NPS subscription of Rs. 3173790, will provide a monthly pension of Rs. 76396!, under APY. In other words, if the government’s contribution towards NPS is assumed to be contributed to Atal Pension Yojana, the subscriber, the government servant can get a monthly pension of Rs. 76396, which is more than the last pay drawn. Considering this, the government may extend the benefits under old pension scheme, assuming its contributions towards NPS as subscriptions towards APY.
7.C.11 Also we can make a comparison based on the returns of the corpus. In APY, for a monthly pension of Rs. 5000, the corpus comes to Rs.8.5 lakh. This corpus fund earns a monthly pension of Rs. 5000. This means, a sum of Rs. 8.5 lakh earns a monthly interest of Rs.5000. The interest rate comes to 7.1% per annum, which is reasonable and justified. If apply the same rate of interest for the government’s contribution alone in NPS, the monthly pension works out to Rs. 18778. It is to be noted that the government contribution works out to Rs. 3173790, without taking any interest for the subscription, but assumed to be kept idle till retirement. If the interest for the monthly subscription is also taken in to account, the monthly pension would be more than what is entitled under CCS (Pension) Rules, 1972.
7.C.12 It is important to note that under the APY, this corpus fund will be returned to the nominee of the subscriber after the death of the subscriber and the spouse. In the case of NPS also, the annuities purchased with the 40% accumulation at the time of retirement will also to be returned to the wards of the pensioner. If the CCS (Pension) Rules 1972 is extended to those government servants, the amount in the annuities can be retained by the government.
7.C.13 For the subscribers of APY, the government assures for a minimum monthly pension, whereas for the subscribers of NPS it is not so. For APY, it is stated that if the actual realized returns on the pension contributions are less than the assumed returns for minimum guaranteed pension, over the period of contribution, such shortfall shall be funded by the government. Since the government’s contribution alone will fetch the monthly pension which is equal to the pension calculated as per CCS (Pension) Rules 1972, the claim of the government servants for pension under old pension rules is justified. Comparatively, the extension of CCS (Pension) Rules 1972 would be cheaper.
7.C.14 The reasons stated for the Need for pension in the case of APY is squarely applicable to the government servants, who are also the citizens of India. The assurance on the same lines for the APY subscribers towards the minimum assured pension is necessary for the NPS subscribers also. It is the duty and responsibility of the government to have a uniform policy to all the citizens of India, whether they belong to unorganized sector or government servants. This guarantee is given by the Constitution of India in Articles 14 and 21.
7.C.15 From the foregoing, it could be seen that the claim of the government servants covered under NPS for statutory pension under CCS (Pension) Rules 1972 is genuine, justified and practicable.
7.C.16 From the above discussion, it could be seen that the government may assume that the 10% contribution made by the government is invested in this APY scheme, on behalf of the government servant. Since the government is prepared to pay this contribution towards NPS, the benefits of CCS (Pension) Rules 1972 may be extended to those government servants covered under NPS.
7.C.17 It is an irony that the subscriptions of both the schemes, viz. New Pension Scheme and also APY are governed by the one and the same PFRDA.
7.D. Investment in General Provident Fund/Public Provident Fund
Even though both the schemes viz GPF/PPFare almost the same, the calculation is done on the basis of GPF. This is because there is a ceiling for annual subscription in the PPF and also this scheme is close ended scheme with 15 years which can be extended to 20 years. For GPF, there are no such restrictions.
7.D.2 The government servants joined prior to 1.1.2004, who are covered by the CCS (Pension) Rules 1972 are eligible to contribute to a GPF account. Those officials who are coming under the purview of NPS are not covered by the scheme. For the NPS subscribers, Tier II contributions are eligible, which are on the same lines of GPF.
7.D.3 Upon allotment of an account number, the government servants can subscribe to this fund subject to minimum of 6% of pay and a maximum which equals to one month’s pay. Advances and withdrawals are permissible, subject to conditions. The subscriptions are eligible for an interest at prescribed rates, the present rate being 8.0% per annum. On retirement, the entire accumulations, together with interest are paid to the government servant.
7.D.4 The monthly contributions towards NPS made by the government are assumed to be subscribed to GPF, every month. The government’s contribution alone is taken for calculation. It is assumed that no withdrawals or advances are allowed. After a period of 30 years, on the retirement of the government servant, the total accumulations are calculated. If this accumulation is invested, after the retirement of the official, then also the monthly return is more than the assured monthly pension under CCS (Pension) Rules 1972.
7.D.5 The following table shows the total accumulations in the GPF, had the government’s contribution alone to NPS been invested in this fund. The calculations are done for different rates of interest varying from 5 to 8% per annum for GPF as the interest rates for such schemes are reviewed every quarter. After retirement, the accumulations in the GPF are assumed to be invested in well-established schemes offering different rates of interest.
7.D.6 Table showing the benefits, had the government’s contribution to NPS alone assumed to have been invested in GPF
|GPF AT 8%||GPF AT 7%||GPF AT 6%||GPF AT 5%|
|Rs.9357931||Rs.8044919||Rs. 6945716||Rs. 6023484|
|Monthly interest||Int rate
|Monthly interest||Int rate
|Monthly interest||Int rate
7.D.7 From the above, it is seen that the investment in GPF yields more returns than the investment in markets. If the government’s contribution to NPS is assumed to be invested in their GPF accounts, the return is more than the amount of pension eligible under CCS (Pension) Rules 1972. It is to be noted that the Monthly Income Schemes operated at present offers 8% interest.
7.D.8 The Finance Minister has announced a scheme for the senior citizens to be operated through LIC for an assured return of 8%, while presenting the Budget for the year 2017-2018 on 1.2.2017. The government servants are also deserve the same kind of social security aspects, in as much as, the government servants on retirement also become a senior citizens of this country.
7.D.9 From the above it could be seen that, instead of depending the returns for investments in market, if the government assumes its contribution of 10% towards NPS is made into GPF, the return will make the benefits under CCS (Pension) Rules much cheaper. Also, the government can retain the entire accumulation; the corpus and nothing need to be paid to the wards.
The claim of the government servant covered by NPS for a pension under CCS (Pension) Rules 1972 is justified, genuine and affordable.
From the foregoing, it could be seen that the investment of NPS subscriptions in markets is inferior to any other investments. The growth in NPS is only notional but not actual. On the contrary, the growth in other schemes is on actual basis and never will come down. The investment in markets is unsafe. The growth cannot be predicted and cannot be real. Since the growth of the fund decides the fate and future of the retired government servant and his family, the NPS should be discontinued forthwith.
8.2 Under NPS, there is no guarantee about the minimum amount of pension. Also, in the event of death of the government servant while in service, 80% of the accumulations will be invested in annuities and only 20% will be paid to the family. If necessary, the entire accumulation will be invested to purchase annuities in order to assure a family pension. As the entire accumulations are invested, the family of the deceased government servant will be paid nothing, when the family will be in absolute need of immediate additional financial support. Even after using the entire accumulation for purchase of annuities, there is no implicit or explicit assurance for a minimum of 1000 rupees as monthly pension.
8.3 On the contrary, it is sure that the investment of the NPS subscriptions to other schemes yields more than what is expected from the NPS. It is beyond doubt that if the subscriptions are invested in well-established schemes, then the returns would be more than sufficient to pay the minimum pension that is assured under CCS (Pension) Rules 1972.
8.4 The government wants to provide social security to all its citizens by way of an assured monthly pension in order to assure a decent and dignified life at the old age. It also prepares to pay 10% contribution towards the NPS, in order to provide them a monthly pension.
8.5 In the light of the above facts, it is sure that the government’s contribution to NPS alone yields more than the entitlement assured under CCS (Pension) Rules. This NPS scheme will no way help the government to reduce the financial burdens and fiscal deficit.
8.6 The following are suggested in order to ensure a decent, secured, peaceful and dignified life of the government servants, who spent their best part of the life to the government. As stated elsewhere in this article, it is the duty and the responsibility of the government, as a model employer to ensure a decent retired life of its pensioners. Also, the government is expected to extend the same kind of social security measures in the case of his employees.
8.7 The government is prepared to pay 10% of pay and DA of the employee as its contribution to NPS. Instead of investing this together with the contribution of the employee in the markets, if the government assumes its contributions alone are invested in various schemes, surely the government can extend the benefits of CCS (Pension) Rules to all the servants joined on or after 1.1.2004 also.
8.8 In the light of the above discussions, the following prayers of the government servants stand justified and deserve consideration by the government. I look forward for that day.
v The NPS scheme should be withdrawn immediately.
v The contributions made hitherto should be refunded to the subscribers with applicable interest.
v All the government servants joined service on or after 1.1.2004 should be brought under CCS (Pension) Rules 1972.
v The government has the pension liability and its employees deserve for a statutory pension. This should be accepted by the government.
v Since the government is prepared to pay 10% contribution, it is possible to extend the benefits under the CCS (Pension) Rules 1972
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