People's Democracy

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


No. 49

December 04, 2011



Pension Bill Evokes Massive Protest


ON November 25, thousands of state and central government employees, railway workers, defence workers, BSNL workers, university and school teachers, and others participated in a huge March to Parliament in New Delhi, to register protest against the PFRDA Bill. They also submitted a petition to the prime minister to which millions of employees had subscribed their signatures. The rally was addressed by leaders of the various sponsoring organisations of employees and several members of parliament.


A seven member delegation, along with Basudeb Acharia, MP, and Tapan Sen, MP and CITU general secretary, met the prime minister later on the day. The delegation consisted of S K Vyas (convenor, Steering Committee), Shiv Gopal Mishra (general secretary, AIRF), K K N Kutty (secretary general, Confederation of Central Government Employees & Workers), S N Pathak (president, AIDEF), P Abhimanyu (general secretary, BSNLEU), Rajendran (general secretary, STFI) and Sukomal Sen (senior vice president, AISGEF). It appealed to the prime minister to reconsider the government’s move at privatisation of pension funds and withdraw the Pension Fund Regulatory and Development Authority (PFRDA) Bill which seeks to replace the existing defined benefit pension scheme for government employees. The concern and anxiety of the government employees over the financial security in the evening of their life was also brought to the notice of the prime minister.


The petition elaborated the various reasons as to why the present bill would neither be in the interest of employees nor benefit the government.


The prime minister assured the delegation of a consideration of the petition and the feasibility of providing a guarantee for a minimum pension, which the standing committee had recommended but unfortunately not found the cabinet’s approval. The prime minister told the delegation that his government would not do anything to harm the employees’ interest.


Before the rally was concluded, S K Vyas announced on behalf of the steering committee that employees would organise a two-hour walkout all over the country on the next day if the parliament took up the PFRDA Bill for consideration.




The memorandum submitted to the prime minister began with the remark that the concept of old age security for civil servants in the form of pension has a very ancient origin, dating back to as early as third century BC. The quantum was half of the wages on completion of forty years of unblemished service to the king.


In the last century, one of the measures taken by the colonial rulers to attract talented personnel to the royal service was the introduction of a pension scheme for civil servants in 1920. The Royal Commission, through its various recommendations, further improved the scheme and the Government of India Act of 1935 provided it statutory strength. 


Later the landmark judgement of the Supreme Court in D S Nakara and Others vs Union of India case (applicable to the central and state government employees, teachers, and other stakeholders of pension system) conceptualised pension as neither a bounty nor a grace bestowed by the sweet will of the employer, but as a payment for the past services rendered. It was construed as a right step towards socio-economic justice and a concrete assurance to the effect that an employee is not left in the lurch in old age.


Still later, the Fifth Central Pay Commission (CPC), which was set up by the GoI in 1993 to go into the wage structure and pension scheme of the central government employees, referred to the Supreme Court’s observation cited above. It then said, “pension is the statutory, inalienable and legally enforceable right earned by the civil servant by the sweat of the brow and being so must be fixed, revised, modified and changed in the way not dissimilar to salary granted to serving employees.” 


The guiding principle adopted in determining the pay package of a civil servant is to spread out the wage compensation over a long period of time, whereby wage paid out during the work tenure is lowered in order to effect the payment of pension on retirement.


However, in an unwarranted intervention in the statutorily defined benefit pension system, an IMF work paper advocated the creation of a pension fund by eliciting subscription from the wage earners from the earliest stage of their employment so as to fetch an annuity decent enough to sustain him at the old age. In fact, it was the suggestion for a retrograde change-over from the defined benefit pension scheme to a defined contributory system. While suggesting so, the IMF said India does not suffer from the demographic pressure experienced by major countries, for India’s population beyond the age of 60 was about 7 per cent in 2004, which rose to 8.6 per cent in 2010, and is estimated to be 13.7 per cent in 2030 and 20 per cent in 2050.




The PRFDA Bill covers the new contributory pension scheme enunciated by the government of India and adopted by most of the state governments. The bill, inter alia, envisages a social security scheme for all who desire to have an annuity in old age, but this is voluntary and not mandatory. However, in the case of civil servants, who are recruited to government service after the prescribed cut-off date (January 1, 2004), the scheme is mandatory in as much as the employee is bound to subscribe 10 per cent of his emoluments to the pension fund while the government, as the employer, would contributes an equal amount. No employee is entitled to opt out of the scheme.


While being unable to bring in a valid enactment, the central and most of the state governments decided to impose the contributory pension system arbitrarily on their employees through illegal executive orders. (However, the government of India’s notification excluded the personnel in armed forces and paramilitary establishments.) The only exceptions were the erstwhile Left led governments of West Bengal and Kerala and the government of Tripura. These Left led governments consciously continued with the existing defined benefit pension system.


Now the PRFDA Bill stipulates that there will not be any explicit or implicit assurance of benefit except the market based return.  The subscriber is thus exposed to the following risks at the exit:


a) If there is a major market shock, the subscriber to the new pension scheme may end with no ability to purchase an annuity.

b) Since annuity is and cannot be cost indexed, the real worth of the annuity might fall, depending upon the inflationary pressure on the economy.

(c) As per the scheme, the subscriber is to make the choice of investment portfolio. As a civil servant is mostly uninformed in finance and investment related matters, (s)he might end up in making wrong choices which would eventually rob her/him of the old age pension.

(d) The subscriber is to perforce contribute to the charges of the investment managers, whose priority is as to how much profit they would make through investment of the huge corpus of pension fund in the (volatile) share market.




As per this bill, the pension fund created from the employees’ subscriptions and employers’ contribution (which directly flows from the exchequer and is nothing but the tax revenue) is to be made available for stock market operations. This is not only unethical but also a blatant diversion of public fund for private profit of both foreign and Indian capitalists.


In the case of civil servants recruited after the cut-off date, the new scheme replaces the existing much better defined benefit pension scheme. In the process, the government would create two classes of civil servants --- one with a defined benefit pension scheme and the other with the contributory pension scheme in which an employee is to part with 10 per cent of her/his emoluments in order to be entitled for old age social security. Since the pay, allowances, perks, other benefits, privileges, duties and responsibilities are the same in both cases, it amounts to wanton discrimination of one against another. This is violative of the constitutional provisions.


As for those who would be covered by the contributory pension scheme, they will become entitled for an annuity which a portion of their accumulated contribution is able to purchase. This would be based upon the accretion to the fund from the investment.  There is, however, no guaranteed minimum amount of pension for those covered by the new scheme, whereas the civil servants covered by the existing scheme would get a defined and guaranteed minimum pension. Also, on their death the latter’s family members (wife, widowed and unmarred daughters or unemployed sons below the age of 25) would be entitled for family pension. The discrimination is thus further compounded.


It is feared that the PFRDA Bill, when enacted, would empower the government to alter or even deny the present employees and pensioners the statutory defined pension benefit, as is the case of those who are appointed after the cut-off date.




It is stated that the prime objective of introduction of the contributory pension scheme is to substantially reduce the outflow on account of pension liability. The defence personnel who account for the major pension liability, are however excluded from the contributory pension scheme, as are those in the paramilitary forces. Thus, no doubt to attract the people to serve in the armed forces for the nation’s security, the government is bound to meet the pension liability from the consolidated fund of India.


A study commissioned by the Sixth CPC has found the argument advanced by the government to cover the civil servants in the ambit of the new pension scheme unsustainable. In his report, S Chidambaram, the actuary, pointed out that the government’s liability on account of contributory pension scheme would in effect increase for a period spanning over the next 34 years (2004-2038) from the existing Rs 14,284 crore to  Rs 57,088 crore and is likely to taper off only from 2038 onwards. The plea that the exchequer is bound to gain due to the contributory pension scheme is therefore specious.


Since most of the state governments have chosen to switch over to the contributory pension scheme, it can be concluded in all fairness that by 2038 the pension liability of state governments is bound to increase to three times of what it is today. 


The first version of the PFRDA Bill was placed before the parliament by the NDA government in 2003. Then, in 2006, the Sixth CPC set up a committee to go into the financial implication of the increasing number of pensioners and suggest an alternative funding methodology. In its report, submitted in 2007, this committee came to the inescapable conclusion that “the existing systems of pension are increasingly becoming complicated after the introduction of the new pension scheme,” and warned that “caution has to be exercised in initiating any further reforms.” In the light of this study report, which predicted serious escalations in the pension payment outflow, the rationale of reintroduction of the PFRDA Bill is incomprehensible. Undoubtedly, when enacted into a law, the bill will throw the existing pensioners and the existing workers to the vagaries of the stock market.


In view of these facts, the memorandum submitted to the prime minister demanded that the government must bring back all the civil servants including teachers, irrespective of the date of entry into government service, as also those irregularly appointed, within the ambit of the existing statutory defined pension benefit scheme.