September 07, 2014

The Reality of Provident Fund Linked Pension

A K Padmanabhan

PENSION is a demand of all workers, in anticipation of a decent retired life.  Indian working class has a long history of struggles for a social security scheme guaranteeing a dignified life.  But the situation in the country has been such that a large majority of Indian working people do not even get wages to ensure a decent living while they are working. It is estimated that only 11 percent of workers in India get some sort of pension benefits.


          While the industrial workers were agitating for a pension scheme as a third benefit (i.e., in addition to gratuity and provident fund) the Government of India came out with a dubious family pension scheme 1971 and then merged it into an Employees Pension Scheme (EPS) linked to the Employees Provident Fund, in 1995.


          In this EPS 1995, the corpus for `pension’ was created by diverting 8.33% out of the 12% of wages paid as employers share of EPF.  This had resulted in a huge reduction of PF amount for the worker at the time of retirement and the pension benefit was very much an insignificant amount.


          The issue of unsustainability of this scheme and also  the insignificant pension benefit was taken up by the CITU at the time of its introduction itself and a countrywide protest strike was organised by the CITU in February 1996. The scheme was also challenged in the courts, which finally gave orders in support of the scheme.      The government of India could convince the court that this is a beneficial scheme, while it was very much evident to anybody doing some basic calculations that it is not so.


          Certain aspects of the scheme, which were used by the government at that time to project EPS95 as a beneficial scheme – commutation of one third of pension, return of capital on death of pensioners – was unilaterally withdrawn in 2008 and many other modifications were also implemented against the interests of the pensioners.


          These were being taken away while the original scheme itself gave Rs 3250 as maximum pension, without any dearness portion (relief) to adjust the rising inflation!


          In the meantime, there were recommendations of the parliamentary standing committee on labour and also an expert committee. The recommendations of these committees were either not beneficial or used as an escape route to give up the responsibilities of the government.


          As years passed by, it was obvious to everybody that EPS95 is not beneficial to workers.  A majority of pensioners were getting paltry amount which was as ridiculous an amount, ranging from Rs 10 to Rs 500. There were also cases where a worker who had got her pension commuted, when that facility was in existence, got Rs 2 as pension! Even today 28 lakh out of 44 lakh pensioners are getting less than Rs1000 per month and a large majority were getting less than Rs 500.


          All the central trade unions took up the issue of changes in EPS and the issue of minimum pension of Rs1000 per month was one of the 10 demands on which the joint platform of central trade unions have been on struggle from 2009.





          After long drawn struggles, the UPA government on the eve of the general elections came out with proposals for the increase of minimum pension to Rs1000.  These were part of integrated proposals, prepared by the finance ministry.  These proposals, put before the Central Board of Trustees included raising the wage limit for applicability of the Provident Fund Scheme from Rs 6500 to Rs15,000.


          These proposals included many changes in calculating the pensionable salary etc., which will result in reducing the pension to a large number of workers.  All the trade unions had raised objections and at that time, the labour minister, who is the chairman of CBT had ensured that existing benefits will not be curtailed.


          The finance ministry’s proposals for increase in minimum pension to Rs 1000 per month was through a budgetary grant of Rs 1217 crores per annum and the proposal was limited to one year only.


          Even the EPFO had raised objection to the proposal of confining this increase to one year.  It had said, “Since the proposal for ensuring minimum pension of Rs 1,000 has been agreed only for the financial year 2014-15, the practicability of carrying out modifications in EPS for ensuring minimum pension when the proposal has been agreed only for one financial year needs to be deliberated.  Once the modifications are introduced it would not be possible to roll them back.  In the absence of a commitment for support continuing in future years, it would not be possible to sustain the benefit on an ongoing basis and an embarrassing roll back would be inevitable apart from the public outcry that would ensue.  It is, therefore, felt that prior to implementing the minimum pension proposal we may seek continued commitment from the government for subsequent years”.


          This issue was deliberated in detail in the CBT meeting, by all TU representatives and the minister had also finally agreed that the increase will not be confined to one year.


          But, the UPA government, even after it was reported that the cabinet had approved the increase of minimum pension, failed to notify it.





          The NDA government, in the budget speech announced  the implementation of minimum pension  and also increase in the wage ceiling to Rs 15000. But, the notification that has now been made, includes all proposals of the finance ministry, which the then labour minister had assured to change.


          At present, these amendments – minimum pension and increase in wage ceiling – will come into effect from September 1, 2014 only.  This has resulted in considerable loss to the 28 lakh of pensioners and also to a huge number of subscribers who will enter EPF, through the increase in ceiling.


          This increase of minimum pension is notified only for the financial year 2014-15, i.e., up to March 2015.  This is in contravention to the assurance of the minister at that time in the CBT.  The continuity of the increased minimum will now depend upon the government’s decision in the next budget.


          Another important issue is that of calculation of pensionable salary which was the average of the last 12 months wages, which, as proposed by the finance ministry has been changed to 60 months. For many workers, who retire after September 1, there will be a reduction in the meager mount of pension, as 60 months average will be less than the 12 months average.


          The `expert committee’ had suggested changing the 12 months average to 36 months and had calculated that it will result in `Savings of Rs 8774 crores! Now by making it 60 months they will be `saving’ much more!


          After the increase in wage ceiling, the pension will be calculated for the period of service up to August 31, 2014 on the basis of Rs 6500 ceiling and later on for Rs 15000 ceiling.  That is, calculation of pension will be on `pro-rata’ basis.


          For those who have been contributing above the existing ceiling of Rs 6500 “at the option of employer and employee’, new options will have to be given within six months for deduction/contribution above the new ceiling. This will also be on condition that the government contribution of 1.16% will not be given for the amount above the new ceiling and the employee will have to contribute 1.16% for the part of deduction above the ceiling.


          And now onwards, any new entrant to EPFO, whose salary at the time of entry is above Rs15,000 the whole amount will be deposited in EPF as “EPS will hence apply only to EPF members whose pay at time of becoming PF member is not more than Rs15000.”


          The government which brought the EPS95 into operation had not taken the interests of workers into consideration and so is the situation today at the time of new amendments!


          On the whole, the struggle for changes in EPS95 will have to be continued demanding very substantial changes including increased minimum pension, annual dearness portion to neutralise inflation and other benefits.