People's Democracy

(Weekly Organ of the Communist Party of India (Marxist)


No. 15

April  10, 2011

PFRDA Bill: The Reality Behind


                                                                                      Tapan Sen


THE Pension Fund Regulatory & Development Authority Bill 2011 (PFRDA Bill) is almost the same bill as was introduced in parliament in 2005, with minor changes.


When the 2005 bill was introduced, there had been murmur and opposition among the government employees as it had a direct bearing on the pension prospect of the central government employees who joined service on or after January 1, 2004 for whom the government already notified a new contributory pension scheme on December 22, 2003. 


The new pension scheme notified in December 2003 envisaged a contribution of 10 per cent of wages by the employee with a matching contribution from the central government as employer, which together will form the pension account for the concerned employee. The fund will be managed and handled by fund managers appointed by the PFRDA, the employees will get pension by the end of their service life and the pension amount will be determined by the return on investment of his pension fund made by the appointed fund manager.




Originally, government employees used to get pension at 50 per cent of the last pay drawn and the pension amount used to get revised with the changes in price indices. It was thus an assured amount. To get this system of assured pension system in place, the government employees had to forego their right to contributory provident fund, i.e., the employer’s matching contribution to the PF. In lieu of that surrender of right, assured pension was granted to them to be paid from the Consolidated Fund of India. This system of assured pensionary benefit is called the “benefit defined” pension system.


The new pension scheme brought about a paradigm shift in the entire concept of pension as a social security measure. Now the pension will be based on the “defined contribution,” meaning thereby that the pension amount will be governed by what the employee’s “pension fund account” can earn from investment in the market. The NPS does not ensure any assured amount of pension to an employee despite her or his life-long contribution to the own pension fund. Both the pension scheme notified by the government and the PFRDA bill (both 2005 and 2011) mentioned in clear terms that “There shall be no implicit or explicit assurance of benefits, market based guaranteed mechanism to be purchased by the subscriber” (Sec 20(2)(g) of the PFRDA Bill).   


Can the market ever guarantee any assured return on investments? In the present day situation with extreme volatility in both the money market and the share market, the return on investment of public funds like pension funds is destined to be uncertain as well as low. Moreover, the fund managers appointed by the PFRDA will handle the fund not for charity but for their own profit. Hence whatever return on pension fund investment will reach the pensioner, will be the net amount after ensuring the profit of the fund managers. In the context of natural uncertainty of the market, fund managers are naturally expected to neutralise their risk first and then take care of the risk of the pensioners who actually supply capital to the fund managers through their life-time savings in pension fund. Therefore the PFRDA bill has paved the new regime of replacing assured pension by a pension system governed by the market forces playing with the employees’ life-time savings. Thus the PFRDA Bill and the pension system it enforces is an onslaught on the social security right of the government employees, a loot of their pension fund.


Efforts for investing a part of the provident fund accumulations of the workers in stock market are being made since long by the government but owing to resistance by the unions that could not be done as yet. The whole system of taking into consideration the opinion of the workers through their representatives in the matter of investment of their own fund in their social security corpus has been given a go bye in the new dispensation of PFRDA regime and the fund-managers and brokers will have the last say on how the employees’ savings will be invested.




But the situation under which the PFRDA Bill 2011 has been put in place has opened another dangerous dimension. It is no more limited to the pension earnings of the central government employees alone or the state government employees in the states where state government also adopted the new pension scheme. The bill empowers the government to extend the ambit to all the existing pension schemes. But most alarmingly, through PFRDA Bill the government now plans to attract the savings of the 46 crore unorganised sector workers for investment in the stock market on the same scheme of market based uncertain returns.


The government has introduced new pension scheme, now named as “National Pension System” for unorganised sector workers. As per the scheme, which is now known as “Swavalamban” and being advertised a lot, the workers will have to contribute to pension fund a minimum of Rs 1,000 per year and maximum of Rs 12,000. After making a contribution for 30 years or so, at the age of 60 years, the worker will be eligible to get 60 per cent of his contribution as lump sum and a pension of not less than Rs 1,000 per month, provided rest of his fund can ensure such return from the market. If his fund earns less, then the portion of  lump sum receipt after retirement will go down and if his/her entire fund(100 per cent of his contribution) fails to earn the minimum stipulated amount of pension (Rs 1,000) he/she has to make more contribution to be eligible for getting the minimum pension. To allure people towards this scheme, the government has announced that it will contribute Rs 1,000 per year for five years till 2015-16.


Already, the government has started making aggressive efforts to enroll workers in the so called Swavalamban scheme. Anganwadi workers who have been struggling since long for pensionary benefit are now being pressurised in many states to accept “Swavalamban” by the respective state governments.


How far the unorganised sector workers are going to be benefited by this scheme? As they do not have any pension benefit at present, it is but natural that a good section of them will be attracted towards the scheme. Will they get any assured pensionary benefit after making contribution for the scheme? No.


The scheme is silent if there would be a break in continuity of contribution which is but natural for the unorganised sector workers, frequently losing jobs and changing employment. What will happen if he contributes for five years thereafter for one year he fails to make contribution or after making contribution for say ten years becomes incapacitated to earn, say at his forty years of age and cannot continue contribution? Will he have to wait up to sixty years either to claim pension or lump sum payment? All these possibilities are not exceptional cases but a natural phenomenon in the life of the unorganised sector workers.


As per calculation, a worker after making a contribution for 30 years at the rate of Rs 100 per month (Rs 1200 per year) will accumulate Rs 1,49,035 which, if fully invested at 8 per cent return can ensure a monthly return of Rs 993 to him. Now as per the scheme, if he is to get the minimum stipulated pension amount of Rs 1000, he will neither get any thing as lump sum. And there is no guarantee whether the investment of his fund will continue to fetch him 8 per cent return at all point of time. If it does not earn 8 per cent in any year, what will happen to his pension earnings, the scheme is not clear about such happenings.




But one thing is amply clear. The new pension system will not ensure any secure pension amount for the unorganised workers despite his continuous contribution to pension fund. Pension amount will be governed by the return earned through investment in market. And the investment will not be merely in the form of credit at assured rate of interest but also in the form of equity market as time to time decided by the fund managers. And such type of investment can no way ensure assured return.


The whole gameplan is altogether different. The share market needs a continuous flow of liquidity to keep up its profits for the speculators and brokers to earn. Pension fund can be one such source for such liquidity as it belongs to none but the poor workers who can be risked for speculative purposes. In the name of providing pension to unorganised sector workers who do not have any social security benefits, the present scheme of Swavalamban has got a prospect of attracting crores of hapless workers to contribute for their old age security. It has a propensity to garner lakhs of crores of rupees from a market in which 46 crore unorganised sector workers will be the customers. Obligation for paying the pension will come after twenty or thirty years. The PFRDA Bill has already provided for the exit route for the fund managers and aggregators through section 20(2)(g) as quoted in the earlier paragraph and also by giving wide arbitrary powers to the PFRDA to decide. It has denied the trade unions to have their say on the investment and delivery of the benefit to the workers as is the practice in case of the Employees Provident Fund.


So far as the experiences of pension fund investment in the stock market in various countries in the world are concerned, on all occasions, workers’ money in pension funds was used to raise the temperature in the stock market to make the brokers and speculators gain and workers always lost in that exercise.


Therefore, it is no more a case of pension for a few crore workers in government sector whose rights and money is being looted. It a much bigger market of 46 crore unorganised sector workers who are being allured to pay for their old age security even by remaining half-fed having immense potential of garnering several thousands of crores for fuelling the stock market. Whether the poor contributors will really get old-age security is as uncertain as the stock market. But that question will arise after twenty years. Till that time the dacoity and plunder can go on and that is precisely the game plan of the speculator-captive government at the centre.


Pension will no more remain a secure social security; it will become a funding source for unscrupulous investors, both domestic and foreign, which will be used through speculative share market. In order to please the foreign pension fund operators in the USA, the government has kept the avenue fully open for FDI investment. With this bill, if passed, the hard earned money of crores of unorganised sector workers will be utilised for speculation. Can the working class and the country as a whole tolerate such open and shameless fraud in the name of social security of millions?