EDITORIAL ANALYSIS : The old pension scheme as a burden on the poor

 

Source: The Hindu

 

• Prelims: Elderly population in India, Schemes for old age people, OPS, Provident Fund pension scheme, EPFO, etc
• Mains GS Paper I & II: Schemes for vulnerable sections of society and performance and issues associated with these schemes etc

 

ARTICLE HIGHLIGHTS

• The demand for the old pension scheme (OPS) is growing especially after a few States announced that they would be reverting to it.

 

INSIGHTS ON THE ISSUE

Context

Elderly Population:

• The National Elderly Policy defines people in the 60+ age group as elderly.
• According to the Population Census 2011, there are nearly 104 million elderly persons in India.

 

Old Pension Scheme(OPS):

• The scheme assures life-long income, post-retirement.
• Employees get a pension under a predetermined formula which is equivalent to 50% of the last drawn salary.
  • They also get the benefit of the revision of Dearness Relief (DR), twice a year.
• The payout is fixed and there was no deduction from the salary.
• Under the OPS, there was the provision of the General Provident Fund (GPF).
• GPF is available only for all the government employees in India.
• It allows all the government employees to contribute a certain percentage of their salary to the GPF.
  • The total amount that is accumulated throughout the employment term is paid to the employee at the time of retirement.
• The Government bears the expenditure incurred on the pension.
• The scheme was discontinued in 2004.

 

Steps taken by government:

• The Sixth Pay Commission had substantially increased the basic salary of government employees to cover pension contributions and promote savings for post-retirement expenses.
• The basic monthly salary of a Class 4 employee (Seventh pay norm) is ₹25,000.
• The salary of a government employee is higher than the income of more than 90% of the population.

 

Rising pension liabilities:

• The pension liabilities of the government increased due to a substantial hike under the Sixth pay matrix
• Pension liabilities substantially increased to 9% of total States expenditure, and are expected to increase in the future.
• The pension liabilities of States account for 2(one point two)% of GDP as on 2021-22.
• From 2004 to 2019: pension expenditure of States registered an average annual growth of 16%,
  • Total expenditure growth stood at 8(twelve point eight)%.
• The aggregate receipts of State governments had an average growth of a mere 41(thirteen point four one)%.
• The share of pension expenditure will account for 7(fourteen point seven)% of total State expenditures by 2040, and 19.4(nineteen point four)% by 2050.

 

Challenges associated with OPS:

• Many State governments have yet to implement the Seventh pay norms, whereas some States have reportedly not paid arrears of the Sixth pay.
• State governments do not have fiscal autonomy.
• The bottom 50% of the population bears the iniquitous burden of indirect taxation six times more than their income.
• Due to the OPS, the bottom of the pyramid population with a monthly income much less than that of government employees has to bear the burden.
• The median age of the Indian population is approaching 30 years
  • The population composition in many States will become older over the next two to three decades.
• Public provision of education and health care is indispensable to harness the demographic dividend.
• The recruitment with OPS poses expenditure challenges for providing public goods, depriving a large population of basic necessities.
• OPS compels governments to compress an already low social sector expenditure, pushing the marginalized into a downward spiral of indigence.

 

Changes:

Initiatives by government for elderly:

Way Forward

• Opposition to the OPS should not be a weapon for downsizing the government but used to argue for a more equitable distribution of resources and expansion of universal provisions of public goods.
• A participatory pension for government employees will provide a more egalitarian outcome in an economy with acute income inequality.
• To protect employees (especially those in the lower rung in the hierarchy) from the vagaries of the market, the government can tweak the NPS to provide a guaranteed monthly return.
• Administrative reforms are required to address unequal pay among various ranks of employees.
• Government employees as a group with a voice and easy access to decision-making can coalesce to push for a rationalization of political executives’ pensions and profligacy, which are a major burden on the exchequer.
  • They can exert influence to pursue progressive taxation of the top 10% (who own 72% of wealth) to address poverty and growing inequality.

 

QUESTION FOR PRACTICE

Performance of welfare schemes that are implemented for vulnerable sections is not so effective due to the absence of their awareness and active involvement at all stages of the policy process – Discuss.(UPSC 2019) (200 WORDS, 10 MARKS)