Newsletter, August 2008

The New Pension Scheme

The new pension scheme was introduced with effect from 1.1.2004 for all new recruitment in central government services. This scheme replaces the defined benefit scheme of the erstwhile GPF-cum-pension system with a defined contribution and undefined benefit scheme. The New Pension Scheme is a “No Pension Scheme” with retirement benefits severely curtailed and any facility of assured pension denied. Its features are as follows:

  1. It is mandatory for an employee to contribute 10% of the total of his/her basic pay plus DA every month to his/her provident fund account.
  2. The matching contribution of the employer i.e. the government in this case, is only 10% of the basic pay + DA, which, together with the mandatory contribution of the employee, constitutes Tier-I.
  3. An employee’s contribution beyond the Tier-I, i.e. Tier-II, does not count towards benefits of income tax. In case of Tier-II, which is yet to be operationalised, there is no matching contribution from the government.
  4. Tier-I contribution does not have any facility of loan or withdrawal.
  5. On retirement, only 60% of the total corpus fund of Tier-I contribution is commuted to the employee. The remaining 40% will be invested compulsorily in the equity market whose uncertain dividends are supposed to provide the pension. This implies that theoretically, one’s hard earned money can be completely lost owing to the vagaries of the market.

The scheme will in fact provide a huge corpus fund to private players to speculate and earn profits instead of providing secured post-retirement benefits to employees.

This scheme is borrowed from the Chilean model adopted by the notorious dictator Augusto Pinochet in the 1980s in collaboration with American financial corporations. Big corporate houses were allowed to speculate with people’s pension fund resulting in total decamping of money. In 2002-03, the BJP-led NDA Government first introduced the idea of a new pension scheme to replace the erstwhile pension system. The change of government in 2004 did not alter the course of the so-called ‘pension reforms’. Owing to the bitter opposition of the Left parties to this pension reforms, the government did not have the numerical strength in the Parliament to make the Pension Bill into an Act. Hence it bypassed the Parliament and introduced the pension reforms in the form of an Ordinance to be enforced on the states. It is unfortunate that the DUTA was absent from the massive country-wide strike on October 31, 2007 by major trade unions and school and university teachers on the issue of pension reforms.

It is worth mentioning that the Armed Forces in this country has not been covered under this new pension scheme on the ground that their service to the nation earns them the right to life-long pension as post-retirement security. The argument used to make this exemption recognises the fact that all others have been denied of any assured post-retirement earning. The DTF, therefore, demands the restoration of the old pension scheme.

In our University, a large number of teachers, who languished as ad-hoc or temporary appointees during the ban on recruitment imposed by the UGC from 2002 to 2004, could only become permanent after 2005. However, all of them were put in the new pension scheme despite being in active service for many years and much before 1.1.2004. Their earlier service was not recognised and they were not given the option to switch to the old GPF scheme. The DTF urges the DUTA to take up the case of these teachers with the University authorities.


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