Why Are Govt Employees in Andhra Opposed to the Newly Proposed Pension Scheme?

The YSR Congress government has unveiled a new pension scheme, which employees say robs them of several benefits.

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Tirupati: The Andhra Pradesh government has been at loggerheads with its employees over the latter’s demand for the implementation of the 11th Pay Revision Commission (PRC). Although the government was able to avert an employees’ general strike in February, the differences between the two sides still remain, with no resolution in sight.

The bone of contention between them pertains to the government’s insistence on implementing pay revision recommendations made by a committee of officials headed by its chief secretary, which proposed a new pension scheme, the Guaranteed Pension Scheme (GPS). The employees, however, say the constitution of the committee and GPS are against established norms. Instead, they sought the release of the 11th PRC, headed by retired Indian Administrative Service (IAS) officer Ashutosh Mishra.

Employees share a feeling that their union leaders have let them down by agreeing to scaled-down salary benefits proposed by the government after they had called off their proposed strike in February. Eventually, the YSR Congress government reneged on its own electoral promise of restoring the Old Pension Scheme (OPS) in the place of the existing Contributory Pension Scheme (CPS).

Of the employee unions, powerful teachers’ unions, which had rejected the government proposals and refused to sign an agreement during the withdrawal of the general strike with the state government, have since kept the heat on the government with their agitations, albeit on a smaller scale.

While the employees awaited a roadmap from the government for the CPS to be done away with by March 30, it, instead, proposed GPS on April 25. Surprisingly, Sajjala Ramakrishna Reddy, the government’s advisor and its public face, went on record to defend the government by saying that they (YSR Congress Party) had no clarity on CPS when the promise to restore OPS was made during electioneering.

The employee unions have been squarely rejecting the government’s proposals and sought the implementation of the OPS, which Y.S. Jagan Mohan Reddy had repeatedly promised while he was in opposition.

Andhra Pradesh chief minister Y.S. Jaganmohan Reddy. Photo: PTI

What is GPS?

The government itself in its bid to sell the GPS to the employees admits in the note circulated to the employees that the earlier CPS was fraught with problems.

“Andhra Pradesh Guaranteed Pension Scheme (AP GPS) which seeks to replace the uncertainty of not knowing what one would receive as pension from a fully market-linked CPS with a AP GPS where the pension is known during the employee’s service period, is guaranteed, and is fully funded from contributions.”

It further adds, “The AP GPS would offer a guaranteed fixed pension at 33% of the basic pay drawn at the time of retirement, compared to the current fluctuating CPS of 20%, thereby leading to an at least 53% increase in the pension annuity. While the AP GPS too will seriously strain the budget, given the genuine concerns of the employees about the CPS, it is the best that can be offered without seriously damaging the economic prospects of the future generations of the state’s population.”

The employee unions say GPS is no better than CPS and recalled that a similar plan to guarantee 50% of the pension, which was recommended by the Thakkar Committee during the previous N. Chandrababu Naidu-led Telugu Desam Party (TDP) government, was rejected too.

A case of CPS Pensioners

GPS like CPS involves payment of 10% of basic pay by both the government and the employee concerned. The government sought to project GPS as a 65% rise in the pension over the estimated 20%  return on their contributions under CPS. This, the employee unions say, is nothing short of a jugglery of statistics by the government.

Looking at the pension received by 1,967 retired CPS employees one understands that 400 of them have been drawing less than Rs 2,500 – the amount given under Jagannna Aasara Pension (social security pension). None of the CPS employees have received more than the minimum pension of Rs 12,466 as revised in the pension scheme in 2022.

A medical officer and legal advisor (intelligence) with the last basic pay of Rs 66,330 and Rs 75,150 are currently receiving Rs 5,874 and Rs 5,360 respectively. Under the OPS, they would have received Rs 32,881 and Rs 38,332 respectively.

Thus, the claims made by the government that an employee would earn 20% of his last basic pay under CPS have to be thus taken with a pinch of salt.

Commenting on the low pay received by the retired CPS employees, G. Hrudaya Raju, president of the Andhra Pradesh Teachers Federation, says, “Humans are not machines to be used and thrown away. When politicians cite corruption by employees, I want to know what is being done by them to prevent it? Politicians who themselves are corrupt and say that there is corruption in the system must understand that change should come from the top, and then percolate down. They now think people will remember them even if they are given Rs 5,000 a month. So, they think as to why give an employee more, as they get around Rs 70,000 to Rs 80,000 by the end of their tenure. They are counting votes and think an outsourced employee will work under pressure for a lesser salary.”

Against this backdrop, there is a need to under what is CPS, which the Union government refers to as New Pension Scheme (NPS).

Why NPS and for whose sake?

Citing the lack of social security for not more than 10% of the aged in developing countries like India and other backward countries, the World Bank said ways have to be devised to bring them under a safety net in its paper “The Old Age Crisis” in 1994.

On the other hand, the Indian industry and commerce bodies called for a reduction in expenditure on pensions. This, even as industry bodies themselves took lakhs of crores as incentives from the government.

Giving into to pressure exerted by this lobby, the Indian government shifted from the decades-old defined benefit system of pension to the contributory pension system paid for by employees themselves. As with the larger world, the pressure to shift to the contributory system also was felt in India, which India eventually fell in line with. At the Union government-level, it was named as NPS, and in Andhra Pradesh, it is called CPS.

The NPS was unveiled by the Bharatiya Janata Party-led National Democratic Alliance government. However, it came into force on January 1, 2004. The same was adopted in Andhra Pradesh under Congress chief minister Y.S. Rajasekhar Reddy, which was rolled out from September 1, 2004 onwards. It came to be known as CPS in Andhra Pradesh.

The pro-market reform agenda of the political parties across the spectrum is quite evident in this.

CPS involves the collection of 10% of the basic pay of the employees which is then matched by a similar deposit by the state government into the pension fund of the employee. These funds are then pooled and handed over to the National Security Depository Limited (NSDL) and then given to pension funds which invest them into ECG (equities, corporate and government securities) depending on the retirement age of the employee and the consequent risk potential.

The risk of zero returns on these pension fund investments is written under NPS clause 20(2). The funds also have foreign direct investments to the tune of 49%. Thus, thousands of crores of money is kept at the disposal of international financial institutions. In many countries where these schemes have been implemented employees have had negative or meagre returns given the volatility of the stock markets.

In GPS too, there is no provision for a PRC. The employee would get 33% of his last salary without any dearness allowance given to OPS employees.

Even the matching grant of 10% the government pays is not guaranteed and governments world over have not kept their promise and have cut their share over a period of time. There is no guarantee that a similar move will not be made by our governments.

The most important facet behind this is the bid to turn the savings of people into capital for the stock markets. Post-2004, similar funds have been established in many poor and developing countries. They have become a primary source of funds which currently match the size of the economies of several countries. The risky investments the fund managers make bring them huge dividends.

Even the assertion that government bonds, municipal corporations’ bonds and public sector bonds are risk-free is misleading, as we can see such instances even in the United States. The US government which announced bail-out packages for companies failed to protect the hapless pensioners, says L.V. Yugandhar, secretary, AP Government Employees Association.

Is OPS really not fiscally sustainable?

The state government in its presentation to the employee’s unions pegs the total number of employees at 10,98.012. Of this, 2,61,311 are under OPS while 3,08,984 are under CPS. The non-pensionable employees are 5,27,717. The service pensioners account for 2,08,623 under OPS. Family pensioners are 3,68,042. The total number of employees and pensioners receiving monetary support are 14,66,054.

CPS Andhra Pradesh by The Wire

Explaining the “unsustainable” nature of OPS, the government says 27% of the people by the year 2100 will be 65 plus compared to just 7% in 2020. This, the employees say, is misleading and irrelevant as they have constituted not more than 1% of the total population of the state.

The government further adds long-term government and private sector bond yields in developed countries connected to the market are also expected to decrease. This, it says, will reduce the return on corpus growth with NSDL from 7.5% in 2013-25 to 2% in 2081-2100.

It adds that the OPS outflow for employees currently under CPS (without their current 10% contribution), which is 74% of total expenditure on salaries and pension as a share of state own revenue (SOR) at Rs 17,640 in 2023, would be 102% of SOR by 2041 and 173% of committed expenditure as a share of SOR. This increase in salary is further projected to grow to 143% of SOR by 2080 and 446% of committed spend as a share of SOR.

But if the contribution of employees and government is continued the government says the OPS would be 83% of SOR by 2058 and 195% of committed spend as a share of SOR. The SOR on salaries and pension is further said would be 119% and 395% of committed expenditure as a share of SOR.

Commenting on these assertions, Yugandhar says, “Implementing CPS is more costly for the government. The state government as of now is contributing 10% as a matching grant to the employee accounts. As per norms fixed by the Centre, they have to deposit 14%, that is 4% additionally, as this is a Central scheme that the state has adopted. This amounts to some Rs 1,500 crore as of now.

In July, when the grama and ward secretariat volunteers and staff are regularised, they will have to be paid nearly Rs 500 crore as CPS contributions. That amounts to Rs 2,000 crore which has to be deposited as CPS contribution annually. This contribution will continue to increase further. There are some 2,000 people who have retired by now under CPS.

Each of them will have to be given some Rs 10,00,000 per person to ensure GPS for them through annuity providers. We can secure this 4% from the government if we knock on the court doors. We are not doing it as we are opposed to the CPS itself.”

Even the government in its presentation is saying that it is the committed expenditure of the state government which will be a bigger burden on them at 446% of SOR if OPS is given sans the current 10%  contribution.

It says the committed expenditure will be 395% of state SOR with the employee and government contribution by 2100. Showing the growth of committed expenditure which includes pensions, salaries, interest on debts and capital payments is wrong as it is the expense on pensions that should be taken into account to evaluate if OPS is a burden or not, he adds.

On the other hand, to implement OPS for the CPS employees the immediate financial commitment would be just Rs 137 crore and it need not pay Rs 1,015 crore to CPS employees now in 2021-22 when it claims it is under financial strain. The employees further say that pensions have remained at 11% of revenue expenditure on average. The all-India figure is currently 19% of revenue expenditure.

On the corpus with the state government, Yugandhar says, “The corpus of Rs 15,335 crore with the government will be sufficient to pay OPS pension for CPS employees until 2041 without any further contribution of 10% from employees as well as government. But with contributions from both parties, pension can be paid until 2058 with the same corpus and does not put any burden on the state exchequer.

The number of government employees at any given point in time will depend on policies and technological developments that are available to do the work assigned. Even under CPS the government can avoid paying only service pension and allowances (50%), commuted value of pensions (9%) and employee pensions of aided and local body (4%), which amount to 63%, but will have to still pay gratuities of 8% and leave encashment benefits of 5% and government contribution to CPS currently at five percent at the current component-wise pension expenditure in 2020-21. This will grow with the growth of more CPS employees.”

The government says it lost revenue due to COVID-19 to the tune of Rs 21,933 crore with a fall in revenue expected to grow at 15% per annum and had to incur an additional expenditure of Rs 30,000 crore. These are the assertions of the chief secretary during discussions on PRC. Even accepting these assertions, the corpus amount the government has is enough to pay until 2034 with government money itself.

On average, Yugandhar says, “Employees live for 15 years after retirement and can be paid instead of spending on them for 30 years.”

The recent reinstatement of OPS by the Chhattisgarh and Rajasthan governments has given a fresh ray of hope for the CPS employees in the state. The unions say they are gearing up for a massive showdown with the government with a proposed Millennium March on September 1, 2022 – the day on which the CPS was launched in 2004.

G. Ram Mohan is a freelance journalist. He can be contacted on Twitter at @mnirm.