The Hindu Business Line : Pension needs more attention

THE UPA Government is to introduce another Amendment Bill to the Employees Provident Fund and Misc. Provisions Act, 1952 (EPF) to make the Employees' Pension Scheme of 1995 (EPS) more subscriber-friendly.

Although it has scrapped the interim report of the Wadhwan Committee (set up by the NDA Government), supposedly in the interests of pensioners, no change in the reform direction is envisaged — that is, of allowing the private sector, including foreign investors, to tap the huge financial resource.

How the Finance Ministry amends the draft Bill is to be seen. Given the gradual collapse of the pension system, linked to the old-age support mechanisms and safeguards thereof, there is a plethora of problems which remain largely unattended. With the proportion of elderly in the country on the rise, private sector players are waiting on the wings, eying this attractive market.

When the EPS of 1995 was drawn up with partial conversion of the EPF scheme to grant statutory pension rights to private workers, the possible repercussions of the regime of falling interest rates were not envisioned. Nor was the widening dichotomy between public and private workers.

Moreover, in contrast to public pension schemes, the EPS lowers the replacement income significantly for a variety of factors, such as ceiling on maximum pension and absence of indexation.

There is no denying that low investment yields from PF are a deterrent. But vested interests are making much of this. Between 1985-1997, the average annual real rate of return of EPS has been estimated notionally at 2.6 per cent. But in a study brought out in 1994, the World Bank estimated it at less than 1 per cent in the 1980s. For reform-pundits, the World Bank cannot err and, therefore, they portray an EPF scenario that is far too pessimistic.

There is no doubt that depressed returns are positively correlated with increased terminal accumulation of pension assets. This, in turn, encourages premature withdrawal of funds. In the private organised sector, the EPF is the largest retirement support scheme covering over 23 million workers.

Another 1.25 million workers fall under other PF schemes such as the Coal Mines Provident Fund Scheme (1948), the Assam Tea Plantation Provident Fund Scheme (1955), the Jammu & Kashmir State Provident Fund Scheme (961) and the Seamen Provident Fund Scheme (1966).

The public sector has 11.14 million employees coming under the PF. So in all, over 35 million employees are covered by the PF, while the total labour force is close to 380 million.

The remaining 90 per cent languishes in the unorganised sector. Add to this the unabatedly unfair treatment of the private sector workers vis-à-vis public sector employees, owing to an under-developed private annuity market.

When the EPS was introduced in 1995, it was specifically stated that it would be mandatory for every contributory provident fund — exempted or unexempt. If any organisation wanted to have a different scheme, the same had to have the Labour Ministry's approval; with violations attracting financial penalty. But there are instances of this requirement being violated, such as the case of the `Post Retirement and Death-in-Service Benefit Scheme' (PRBS) introduced by ONGC in 1998.

The Labour Ministry gives its approval if any alternative scheme is better than the EPS. In ONGC's case, the company pays only Rs 100 annually towards the scheme but handles millions of rupees. PRBS insulates ONGC from financial accountability, as the latter has neither `administrative responsibility' nor `financial liability'. In other words, if there is leakage of, say, Rs 50 crore from the PRBS fund, ONGC cannot be blamed.

There are genuine problems faced by some pension schemes, such as The Railways Pension Scheme, as cited by Prof Ranadev Goswami of IIM Bangalore in a paper. The RPS faces the probability of `financial insolvency'.

The number of pensioners had shot up from 0.27 million in 1984 to 1.05 million in 1999-2000. The pension-payment liability of the Railways has increased 50-fold, from Rs 106 crore in 1980-81 to Rs 5,312 crore in 1999-2000.

Eight years of EPS is long enough for review. And 39.5 million subscribers is a large enough number that merits much attention.

(The author is a Kolkata-based freelance writer.)

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