Exempt Defence Civilian Employees From New Pension Scheme – AIDRDO TOA
All India DRDO Technical Officers Association have represented both
the Central Government and 7th Pay Commission to exempt the Defence
civilian employees from New Pension Scheme. The copy of the
Representation of AIDRDO TOA is given below..
“……Dear colleagues
We have represented to both previous NDA & UPA Governments to
scrap NPS.Now we have requested the present Government to exempt the
Defence civilian employees from New Pension Scheme at par with Armed
Forces.Let’s be optimistic that present Central Government will exempt
us.Let’s build pressure on the Govt. by ensuring that employees/officers
who joined after 01/01/2004 send individual representations to the
Cabinet Secretary through proper channel.Pl.forward this mail to our
younger brothers & sisters who joined after 01/01/2014.
During the meeting with Chairman,7th CPC we have categorically told
that New Pension Scheme should be rescinded and scrapped.We requested
that the CPC can intervene as 6th CPC had given recommendations that
Defined Pension Scheme is better than NPS.We requested that the
recommendations of 6th CPC should be applied to all entrants since
01/01/2004.
The extract from our memorandum to 7th CPC on NPS is given below for ready reference.
New Pension Scheme (NPS)
2.1 The contributory pension system brought in by the GOI through
their notification dated 22.12.2003, now renamed as National Pension
System under PFRDA Act, has been imposed on Government employees who
entered service on or after 1.1.2004.
2.2 This is an illegal act in as much as the Supreme Court of India
had held Pension as an enforceable inalienable fundamental right.
Therefore it should be scrapped or at least not made applicable to
Government employees. This has also divided the CG employees into two
categories and therefore it is discriminatory in respect of persons who
have entered service on or after 1.1.2004 who had been denied the
statutory pension. Any discriminatory scheme is illegal and ultravires
of Article 14 of the Constitution. On this count also the NPS cannot be
made applicable to the Government employees.
2.3 The Centre for Economic Studies and Policy, Institute for Social
& Economic Change, Bangalore in a Study of Terminal Benefits of the
Central Government Employees sponsored by the VI CPC had also observed
that Civil Services Pension is in the nature of a deferred wage. It is
well known that the principle guiding the pay package of civil servants
is one of intentionally spreading out the compensation over a long
period of time, thereby the wages paid out during the course of the work
tenure is kept low by design, and the pension payments made during the
retirement phase compensate for the low working wages.
2.4 The above mentioned study under the heading “Arguments against pension reforms” states as follows:
“Deferred Wage: In the context of civil servant pension payments, it
is argued that, the principle guiding the fixation of pay package is one
of intentionally spreading out the compensation over a long period of
time, whereby the wages paid out during the course of work tenure is
kept low by design, and the pension payments made during the retirement
phase compensate for the low working wages. The Supreme Court of India
held that pension is neither a bounty nor a matter of grace depending
upon the sweet will of the employer. It is not an ex-gratia payment, but
a payment for past services rendered. It is a social welfare measure,
rendering socio-economic justice to those who in the heyday of their
life ceaselessly toiled for the employer on an assurance that in their
old age, they would not be left in the lurch.”
“Larry Williams observes “Actually, civil service pensions, because
they are not based on contributions, are best described as deferred
wages. Civil servants accept a lower current wage in exchange for the
promise of a pension in their old age. If this pension were
contributory, they would insist on a higher wage and government would
have to either increase taxes or borrow (issue debt) to pay it. The real
cost of civil servants is thus much higher than recorded under the
current system of cash accounting. A good reform would be to move to a
system of accrual accounting setting up at least a notional fund to pay
these deferred wages” (Larry Wilmore, 2004)” “Public and private sector
pay differentials: A comparison of the public and private sector wages
reveals that while the public sector wages for the lower grades compares
well with that of the private sector, the salaries of the employees
belonging to the higher grades are highly unfavourable to the public
sector employees. The post-retirement benefits that the government
employees are entitled to act as some incentive to retain them in
government sector.”
2.5 The above study had submitted the following estimated pensionery
outgo which tends to increase during the period from 2014-2038. It is
only after 2043 that it starts declining and will be reduced to zero
only in 2088. The table is given below:
Table showing estimated pensionery outgo
| Year |
Employee Pension Payout (in Rs Crores) |
Family Pension Pay out (in Rs. Crores) |
Total pension payout (in Rs.Crores) |
| 2004 |
11300.69 |
2983.38 |
14284.07 |
| 2008 |
13532.84 |
3572.68 |
17105.52 |
| 2013 |
16549.07 |
4368.94 |
20918.02 |
| 2018 |
21862.54 |
5771.79 |
27634.33 |
| 2023 |
27723.68 |
7319.11 |
35042.80 |
| 2028 |
34076.27 |
8996.13 |
43072.41 |
| 2033 |
39321.68 |
10381.01 |
49702.69 |
| 2038 |
45164.50 |
11923.41 |
57087.90 |
| 2043 |
41747.23 |
11021.30 |
52768.53 |
| 2048 |
35011.92 |
9243.18 |
44255.10 |
| 2053 |
25405.44 |
6707.07 |
32112.51 |
| 2058 |
16303.15 |
4304.07 |
20607.22 |
| 2063 |
8179.51 |
2159.39 |
10838.90 |
| 2068 |
3159.88 |
834.19 |
3994.07 |
| 2073 |
800.68 |
211.34 |
1012.02 |
| 2078 |
110.26 |
29.17 |
139.43 |
| 2083 |
3.52 |
0.97 |
4.49 |
| 2088 |
0.00 |
0.00 |
0.00 |
2.6 The above study had also pointed out that expenditure on pensions
of civil servants of high income OECD countries on an average is 2% of
GDP (less than 1% in Ireland and more than 3.5% in Austria*)(* Source:
OECD Social Expenditure Database). But in the 8 South Asian countries it
is less than 1% of GDP (Source: World Bank Data base). However, in
India between 1964-65 and 2004-05 on an average pension payments (Civil
Service pension paid by Central Government) have constituted 0.51% share
of GDP. The Pension liability would continue to increase and reach
0.54% level by 2014-15 and remain at that level till 2024-25 after which
they would decline as a percentage of GDP according to the same study
conducted by Dr.Gayatri at the instance of VI CPC. These figures argue
themselves in favour of continuation of the Defined Benefit Pension
Scheme for all Central Government employees instead of throwing a
section of them to market based NPS. According to 2011 census 62.8% are
in the age group of 15 to 60 and only 8.2% are above the age of 60.
2.7 From the above projection it is very clear that the benefit of
NPS will commence only after 30 years i.e. in 2044. And during the
period it will increase exponentially as because in addition to the
Statutory pension liability the Government will be contributing to the
NPS also @ 10% of annual salary bill of the CG Employees who have
entered service on or after 1.1.2004.
2.8 The final conclusion of this study team has been as under:
“Mainly given the fact that the future liability although may be
large in terms of the absolute size is not likely to last very long and
does not constitute an alarmingly big share of the GDP which is also on
the decline, it appears that pursuing the existing “Pay As you Go” to
meet the liability would be an ideal solution.”
2.9 Applying this conclusion we may suggest that the NPS may not be
made applicable to the Government employees and all those who had been
covered under NPS may be reverted back to statutory pension scheme. The
Government may be asked to study the experiences of this scheme in
several other countries in the world. In Chile such a scheme has been
reversed as because the return which the low paid employees got out of
the annuity purchased was not as good as 50% of LPD but as low as 20% of
LPD. The UK Government had to pay out of the exchequer large amount by
way of subventions in order to ensure that that annuities purchased
yield 50% of LPD as pension. It is well known that in USA where there
were similar pension schemes dependent upon the market had collapsed
during the financial melt down from 2008 onwards. It is estimated that
more than 3.5 trillion $ worth of pension wealth was lost. The workers
not only lost their pension but also their jobs. Our respectful
submission is that taking into account the demographic considerations of
India which is a country of young do not need any such market oriented
pension scheme, particularly when the international experience is that
such schemes had failed and our country can afford to pay pension to
civil servants which stands at level of 1% of the GDP. We conclude by
quoting the opinions of experts on the future of market dependent
pension Scheme.
Mr Joseph Stiglitz (Chief economic advisor to former president of USA
Bill Clinton, former vice-chairman and chief economic advisor, World
Bank, Nobel Prize winner, Professor of economics, Columbia university)
said that “Stock market does not guarantee returns. It does not even
guarantee that the stock values will keep up with inflation.
Privatization would not protect retirees against the social security
systems insolvency. Argentina’s privatization of its pension system was
at the centre of its fiscal woes”.
Mr Dean Baker (Co-director for centre for economic and policy
research, Washington) said “Privatisation means that you would not have a
guaranteed benefit that you have today. It would depend on how will
your investments do or how well they have done at the point you retire.
He quoted the collapse of NASDAQ and Enron. In Britain, Insurance
companies could not honour their promises and the Government had to
compensate with 8 billion pounds”.
We have requested the PFRDA Authority to furnish certain information
on their working . On receipt of this information we may make certain
further submission for the consideration of the Commission.”
With greetings,
Yours fraternally
V.Krishna Mohan
