People's Democracy

  Retrograde Moves To Change Pension Scheme 

W R Varada Rajan

THE government of India launched the Employees’ Pension Scheme, 1995 (EPS 95), by diverting 8.33 per cent of the employers’ contribution to the Provident Fund account. The CITU had consistently been demanding Pension as a third retirement benefit; but the government was stubbornly resisting the demand. When the EPS 95 was under formulation, the CITU demanded that the benefits under the EPS 95 should be on par with the pension scheme for government employees, including the provision for index-linked dearness relief. The government only made certain cosmetic changes in the scheme proposed by them and introduced it by way of an ordinance. It inserted the Para 32 in the EPS 95, providing for annual actuarial valuation of the Pension Fund, promising that the benefit package under the EPS 95 would be improved during such annual valuations. Unfortunately, there was no unanimity amongst the central trade unions over the EPS 95. While the CITU and several other unions opposed the Scheme and challenged it in judicial forums, a few other unions fully backed the government move at that time.

The first four annual actuarial valuation reports of Employees’ Pension Fund revealed a projected valuation surplus and recommended ad hoc payment of relief as under: 

However, in all these valuation reports the amount of surplus kept on decreasing year after year. 

Only other change effected in the EPS 95 was to increase the wage ceiling from Rs 5000 to Rs 6500 per month from June 2001.

The 5th, 6th and 7th annual actuarial valuation reports as on March 31 of 2001, 02 and 03 respectively projected valuation deficits running up to Rs 19,291 crore! The reasons cited by the Actuary were softening of the interest rate (deliberate lowering of the administered rate of interest by the government of India from 12 to 8 per cent) and increase in wage ceiling from Rs 5000 to Rs 6500 resulting in a heavy impact on the pension liabilities. These valuation reports on the one hand ruled out grant of any further relief (not even the ad hoc 4 per cent relief) but on the other doled out prescriptions to effect several adverse changes in the EPS 95.

The EPF Organisation, after examining these valuation reports with the inputs provided by the Consultant Actuary, placed the following proposals to Central Board of Trustees (CBT):

1. To control withdrawal under the scheme, to increase contribution rate suitably or the benefit under the scheme reduced suitably. (An amendment to para 14 of EPS 95 was suggested.)

2. To revise table B and D

3. Increase in reduction rate from 3 per cent to 5 per cent in early pension cases

4. While determining pensionable salary linking corresponding service period to the corresponding wage/wage ceiling for all periods in-between various wage ceilings.

5. To increase the superannuation age from 58 to 60 years

6. Need to take up requisite measures in case of future increase in wage ceiling.

The above proposals were termed as very important to ensure sufficiency of Employees’ Pension Fund and sustainability of Employees’ Pension Scheme, 95 in the long run.

The CBT noted that the changes proposed were of far reaching consequences, adverse to the interests of the workers and recommended that the ministry of labour convene a meeting of the central trade unions for a comprehensive review of the EPS 95 itself. The secretary, ministry of labour, convened two meetings on April 21 and June 21, 2005 for the purpose.

But, the first meeting was confined to the issue of amendment to Para 14 of the EPS 95. The amendment envisaged that in all the exit cases before attaining the age of 58 years where the eligible service is less than 10 years on date of exit, Scheme Certificates would be issued to such members, which will be valid till the age of 58 years.

The fact is that non-pensionable exits (from the coverage of EPF Act) are eight times more than those of pensionable exits. The reason for the steep increase in the non-pensionable exits from EPS 95 is more due to involuntary non-employment of workers as a result of the methods adopted by the employers like retrenchment, outsourcing, downsizing, VRS, closure, etc. and not due to employees voluntarily changing their jobs frequently. 

Paragraph 14 of the Employee’s Pension Scheme, 1995 gives the employees, (leaving the EPS 95 before the stipulated minimum period of 10 years) the option of availing either withdrawal benefit or the scheme certificate. Taking away this option will make the scheme certificate compulsory, which the workers will have to carry up to his completing the age of 58, even if they are not employed in a coverable establishment for the rest of their career-life. This is a totally unjust proposition and all the central trade unions urged the ministry of labour/EPFO to drop the proposal altogether.

At the second meeting held on June 21, 2005, the EPFO placed the other proposals, which are intended to slash down even the limited benefits now available in the EPS 95. But, there was no review of the operation of the EPS 95 as suggested by the trade unions at the first meeting. The EPFO did not place a status paper even on the EPS 95 at the meeting.

The CITU representatives pointed out that the Supreme Court of India had validated the EPS 95 only on the basis of the benefit package as contained in the Scheme. Any move to tinker with the benefit package to the detriment of workers’ interests would tantamount to a violation of the apex court judgement itself. There was a general consensus against any hasty move to change the EPS 95 and that all the required data should be placed for an in-depth consideration. The secretary, ministry of labour, agreed to convene yet another meeting after furnishing all the data and information, but the threat to undermine the pension scheme very much looms large.  The working class must remain vigilant and act unitedly to protect and further improve the EPS 95.