Friday, 22 November 2013

Pension system for Government Employees in India:

I have sent my suggestions to VIIth Central Pay Commission (CPC). Click to read.

Pension system is not a new or not established either by British or present Government of India. It is in vogue since hundreds of years. Earlier its form was different. Kings used to provide for work done by their respective commanders and soldiers by giving some land or authorising collection of revenue. Portion of collection was allowed to be retained by the king’s employee and his/her heirs. British India Government introduced Pension system in India after Indian Independence struggle in 1857. This was a reflection of the Pension system then prevailing in Britain. Governors were empowered to sanction pension to employees. Hence pension was totally governed by governors. The pay scales in the government service in India were planned to enable the “native employees” of the British Government to meet their normal subsistence. Practically nothing was left from the pay to make provision for their post-retirement life. The service conditions did not allow the Government employees to earn any extra income by doing business or through any other profession. British Government decided to provide money cover for their post retirement life of her employees. Rules for Pension System thus started in India was finalised by the Indian Pension Act of 1871.British Government authorised Viceroy and Governors for granting pension. This had been kept outside the jurisdiction of all courts.

British Government occasionally compensated pensioners through increase in their pension to neutralize effect of inflation. There had been no time period fixed for enhancing pension. First pension rules were enforced only in 1945. Later, Liberalised pension rules were formed in 1950 with effective date of 17-04-1950. These rules included benefits like DCRG and commutation of pension. Family pension scheme came into existence with effect from 01-01-1964. In 1968 on a writ filed, Supreme Court ruled that Pension is binding obligation of government (and not a gift/reward or bounty refers to Writ No. 217/1968). The Government brought out a consolidated publication of all scattered pension rules under the title “New Pension Rules 1972”. In 1985 CGH Scheme was made applicable to pensioners including their dependants. Pension as per Article 366 (17) of the Constitution of India; means a pension, whether contributory or not, of any kind whatsoever payable to or in respect of any person, and includes retired pay so payable, a gratuity so payable and any sum or sums so payable by way of the return, with or without interest thereon or any other addition thereto, of subscriptions to a provident fund.
Shri D. S. Nakara Financial Advisor to Ministry of Defense, (an officer from Indian Defense Service Audit and Accounts) retired in 1972. He faced many problems in getting pension. Finally he lodged a petition in the Supreme Court. Justice Yashavantrao Chandrachud, then Chief Justice heard the petitioner and the Government and ruled that 'Pension is neither a gift nor a reward or bounty' Pension is the right of a retired Government servant who had served nation for a long time. A pension scheme consistent with available resources must provide that the Pensioner would be able to live:
free from want, with decency, independence and self respect and
at a standard equivalent at pre retirement level
Government is bound to ensure that her employees lead a peaceful and honorable life after retirement. This historical judgment was issued on 17 Dec 1982.
Chronological Events in Pension Scheme
  1. India Pension Act introduced in 1871.
  2. First increase in pension made in (1914-18) when First war was over.
  3. Second temporary increase was sanctioned in 1943-1945 (2nd World War is over) due to high inflation.
  4. Due to increase in high rate’s etc. some portion of pay (D.P.) was ordered to add while fixing pension w.e.f. 1.1.46 (Retired between 2.3.39 to 31.12.47). This was effected w.e.f. 23.3.1947. This concession was extended up to 31.12.52.
  5. F.R made effective from 1.1.1922. But pension rules were not consolidated up to 1.10.38. Liberalized Pension Rules 1950 were formed and made effective from 17-4-1950. Pension rules 1972 were framed on the basis of Liberalized Pension Rules 1950.
  6. As per Supreme Court decision dated 17-12-82 in Writ petition NO. 5939/80 that pension is binding / obligation on Government it is not a gift / reward/bounty. (Nakara Judgment)
  7. Liberalised Pension Rules 1950 had provided DCRG/family pension for restricted period. ½ rd commutation of pension amount was allowed and provision of nomination.
  8. Family pension scheme introduced w.e.f. 1-1-1964 (reducing 2 months DCRG) Reduction of 2 months D.C.R.G w.e.f. 22-9-1977. Spouses alive on 22-9-1977 were granted Family Pension w.e.f. 22-9-1977 in pursuance of the Supreme Court decision.
  9. Minimum Pension Rs. 100/- fixed w.e.f. 1-1-1973, Rs. 375/- W.e.f. 1-1-1986 and Rs. 1,275/- w.e.f. 1-1-1996. (Equal to minimum living standard).
  10. Provision of Medical Aid introduced through CGHS in 1985.
  11. Restoration of full pension is expected after 15 years of retirement. This is because pension commutation is for the period of 15 years
  12. Physically and mentally handicapped children and widowed daughter of pensioners are now eligible for family pension. Government accepted this and the decision is in force since 1974. Further family pension is now admissible for unmarried and divorced daughters. There is no age limit for daughters but income limit is applicable.
From above information it is clear that pension is a basic necessity of every citizen. It is a social security. In organised government sector pension was authorised for every employee. However, the government denied this security to her employees who joined government continuous service on or after 01 April 2004. This is an incorrect decision and against the constitutional provision [Article 366 (17) of the Constitution of India]. Government pays less during service and compensates employee through pension. In private sector employees having similar skills and capabilities receive nearly double the pay and other benefits if not more. This is revised every 3-5 years. If the government would have kept aside the difference in payment (while compared to private sector) say in a pension fund, the government would have been in a positive condition to pay adequate pension to retirees and families of retirees. The government forgets conveniently while comparing private and government sector. Private sector contributes in employees’ provident fund equally to certain limit where as the government’s contribution is zero. Thus the government saves huge amount by paying less to the employee during service in addition to not contributing to Providend fund. It is the inaction of the government not to safeguard these savings and finally use for paying pension. By paying pension the government does not do any over payment to employee. Whatever less paid to the employee could be considered as debt taken by the government. Hence, pension paid by the government is nothing but EMI paid towards the debt taken by the government.
Once pension is considered as the basic necessity of retired employees it is natural to pay pension to government employees. This is because the government has saved money by paying less during service, not contributing towards Providend fund. It is logical to pay back this saved money to pensioners after taking in to consideration inflation. It is responsibility of the government to invest saved money intelligently and pay back to retirees as pension. In past the government has taken right steps to pay pension to retirees during their life and accepting responsibilities of the retirees after their respective death.
Now the government is avoiding their responsibilities and forcingemployees to accept totally different pension schemes viz Employees PensionScheme 95 (EPS 95)   and National Pension Scheme (NPS).  Both of these schemes are contributory Pension Schemes. None of the scheme takes in to consideration reduced monthly salary paid to the government servant while in service. Further inflation is not considered in any of the schemes. EPS 95 formula is average monthly salary of the last year of service multiplied by the number of years of service divided by 70. This does not take in to consideration effect of inflation. NPS scheme does not guarantee pension to dependants of employee after his/her death except for the spouse. Hence, both the schemes violet decision of the Supreme Court referred above (A pension scheme consistent with available resources must provide that the Pensioner would be able to live:
·        free from want, with decency, independence and self respect and
·        at a standard equivalent at pre retirement level).
This shows that present system of pension should continue and the government should raise independent fund from saved amount and invest suitably so that Supreme Court judgement can be implemented in its true spirit.

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