May 07, 2023

Restoring the Old Pension Scheme: A Struggle against the Neoliberal Agenda

R Karumalaiyan

THE central and state government employees have been engaged in a prolonged struggle against the National Pension Scheme (NPS), demanding the restoration of the Old Pension Scheme (OPS). The movement has gained momentum recently, with 15 lakh state government employees of Maharashtra going on strike since March 14, and 70,000 government employees in Haryana agitating, braving water cannons. The continuous efforts of the government employees' movement have brought the issue to the forefront of the socio-political discourse. As a result, five non-BJP-ruled state governments - Rajasthan, Chhattisgarh, Jharkhand, Punjab, and Himachal Pradesh - have conveyed their decision to the Central Government and the Pension Fund Regulatory and Development Authority (PFRDA) to reintroduce the Old Pension Scheme (OPS) for their state government employees.


All the proponents of neoliberalism have launched a scathing attack on these state governments, labeling their decision as 'fiscal immorality.' The Reserve Bank of India (RBI) has also been vocal in its criticism of the states, bringing out report after report decrying the financial profligacy of OPS. The business columns of mainstream media outlets are filled with articles lamenting the supposed impact of the state’s financial position on their social welfare expenditure.

Furthermore, official propaganda has been disseminated to justify the decision, claiming that the cost of state-funded schemes is no longer sustainable and that pension fund schemes like NPS can provide the necessary finance for productive investments and economic regeneration. The proponents of this ignominious idea argue that individual finance, collected as pension contributions from employees and workers and invested in the financial market, will bolster the declining share market and stimulate economic growth. However, the real driving force behind the shift towards funded pension schemes has been politically powerful vested interests in the financial market.

The so-called 'pension reform' was essentially a class project of neoliberalism. In the 1990s, the World Bank raised an alarm on the supposed 'impending doom' that would result from the old-age crisis arising from most countries' then-dominant state-funded pension model. As a 'panacea' to this supposed crisis, the World Bank coerced sovereign countries to shift from defined benefit schemes to various other models based on neoliberal principles.

The majority of countries have since shifted from the defined benefit pension scheme to the contributory pension scheme, which operates in line with neoliberal principles by reducing government involvement in pension obligations and funding and transferring market risks associated with pensions to individuals. This rollback of the state from pension obligations, and the associated shift to market-linked pension schemes, has ignited protests worldwide.

Against this backdrop, the Vajpayee regime introduced the New Pension Scheme (Contribution-based Pension Scheme), now known as the National Pension System (NPS), on December 22, 2003. The NPS was intended to serve the bloodthirsty financial market and was made mandatory for all new central government recruits (excluding the armed forces) from January 1, 2004. The Left parties consistently opposed the NPS during the UPA regime, preventing the necessary legislation from being passed.

However, towards the end of the UPA regime, ruling without the support of the Left, the government passed the Pension Fund Regulatory and Development Authority Act (PFRDA). After the enactment of the PFRDA Act in 2013, the new pension scheme introduced on December 22, 2003 was renamed the National Pension System under the Act's Section 20. Today, the NPS is regulated under the PFRDA Act of 2013 and related regulations framed by the department of financial services and PFRDA.


The Left parties strongly opposed the NPS in both houses of parliament, and the Left-ruled states of West Bengal, Kerala, and Tripura refused to implement it during that period. Due to the Left's pressure and the employee unions' protests in West Bengal, the old pension scheme continues, and successive governments have refused to implement the NPS. In Kerala, it was during the UDF rule in 2013 that the NPS was adopted. However, in Tripura, the incumbent BJP government, immediately after taking office, adopted the NPS in its first budget session in 2018.

Now, NPS is divided into three categories. The first category is the government model for central and state government employees. NPS is mandatory for Central Government employees (except Armed Forces) recruited on or after 01.01.2004, and all state governments, except West Bengal, have also adopted NPS for their employees. Government employees contribute 10 per cent of their salary, and the respective governments make a matching contribution. The employer's contribution rate for central government employees has been increased to 14 per cent with effect from 01.04.2019. The second category is the corporate model, where companies can voluntarily opt for NPS for their employees with contribution rates as per their employment conditions. The third category is the all citizens model, which allows all Indian citizens aged between 18-65 years to join NPS on a voluntary basis.

Upon exit, retirement, or superannuation, a minimum of 40 per cent of the corpus must be utilised to purchase an annuity from a life insurance company to procure a pension for life, and the balance of 60 per cent of the corpus is paid as a lump sum. The proponents of neoliberalism portrayed this as an ideal pension scheme. However, the reality is different. Let us examine a real-life example.

Consider an employee who worked for the railways for 14 years and retired with a basic pay of Rs 46,000. Under the old pension rules, ten years of service were sufficient to receive a pension equal to 50 per cent of the salary, i.e., Rs 23,000. Additionally, she could commute 40 per cent of her pension, i.e., Rs 9,200, and receive a lump sum of Rs 9 lakhs. She would then receive a residual pension of Rs 13,800 with a dearness allowance for the full pension of Rs 23,000 for 15 years, after which she would receive the full pension with a dearness allowance. In this case, her benefits were well-defined.

In contrast, in the NPS, she had accumulated 12 lakhs in her pension corpus, which had accrued from her 10 per cent pay plus DA and government contribution with returns on investment. She could take 60 per cent of the lump sum, i.e., Rs 7.2 lakhs, and had to invest the remaining 40 per cent, i.e., Rs 4.8 lakhs, in an annuity, which is the default annuity for central government employees. She had to pay 18 per cent GST on the purchase price of the annuity. The annuity is the pension, and she received only Rs 2,600 as a pension at the rate of Rs 520 per lakh. Where is this paltry sum of Rs 2,600 when compared to Rs 23,000? There is neither commutation nor DA. The present political dispensation and its cohorts claim that Rs 2,600 is a decent and adequate pension. It should be noted that the annuity service provider company will invest in the share market, and the pension continuation is dependent on market volatility. There is no minimum pension guarantee. The minimum pension in the central government is Rs 9,000 plus dearness allowance. To receive a pension of Rs 23,000 in the NPS, an employee must invest Rs 45 lakhs and have a pension corpus of Rs 1.12 crore. Even after 30 years of service, no employee could accumulate such a sum, making the NPS a fraud on employees and workers.

Prof Prabhat Patnaik summarises this phenomenon as “the change in the pension scheme for government employees introduced by the Vajpayee government was part of this parsimony that is the obverse of the largesse towards the rich. By bringing in a self-contributory element and investing pension funds in the financial market, this “reform” reduced government contribution; it imposed a tax on each employee for his or her own pension, thereby offloading pensioners from the general revenue; and it made the pension amount uncertain and dependent on the market by making the pensioner rather than the government bear the investment risk”. He added that “the main argument for the change that it reduced the burden on the exchequer was an illicit one. A government must raise revenues to meet its social obligations rather than reneging on its social obligations on the plea of inadequate revenues”. 


The principles of liberalisation, globalisation, and privatisation that have been adopted as the guiding principles of the state have brought about a paradigm shift in the economic governance of our country, particularly in the area of taxation policy. Unfortunately, our Tax-GDP ratio is one of the lowest in the world, and a significant proportion of the tax revenue collected comes from the poorest working people in the country through indirect taxes on essential goods and services. To make matters worse, much of the tax revenue collected is routinely diverted to big corporations, as was witnessed during the COVID-19 pandemic when ten lakh crore rupees were given to corporate entities. Additionally, in the first eight years of the Modi administration, Rs 12 lakh crore were written off from our banks, with the bulk of it going to big corporate borrowers, resulting in a whopping Rs 16 lakh crore total defaulted loan amount. This clearly indicates that resources are not scarce, but rather, the political will to utilize them in a fair manner is lacking.

One potential solution to this problem is to levy a 1 per cent wealth tax, which would be sufficient to finance all of our social expenditures, including pension obligations. Another idea that is gaining momentum around the world is to implement a 15 per cent global minimum tax on the profits of multinational corporations. This would ensure that these entities pay their fair share of taxes, rather than avoiding them through various loopholes and tax havens. By implementing these policies, we can ensure that our tax system is more equitable and that resources are allocated in a fair and just manner.

It's important to remember that a pension is not a discretionary or gratuitous payment at the whim of the employer. Rather, it is a deferred wage payment for past services rendered by workers who toiled tirelessly in their prime years for their employers. The Supreme Court has reiterated this fact repeatedly, emphasising that pension is a rightful entitlement that should be protected and preserved.

Unfortunately, in the current phase of globalisation, finance capital is on the lookout for ways to maximise returns and access global markets. One such target for international finance capital is the pension schemes of workers, which have become a prime target for exploitation. In India, this has taken the form of the National Pension System, which has been designed to expropriate workers' pension funds.

It's crucial that we resist this scheme and fight to restore the Old Pension Scheme. This fight should be integrated with the ongoing struggles of working people to change the policies of the ruling polity. By coming together and raising our voices, we can push back against the forces of exploitation and ensure that workers' rights are protected and upheld.