Pension crumbs

Millions of retired persons who are part of the EPF are receiving pension amounts less than destitute and old age pensions.

It is incredible how anyone can be expected to survive on paltry pensions that the government doles out. The Employees Provident Fund Organisation (EPFO), the world’s largest social security provider, covering 6.91 lakh establishments and 855 lakh members, has simply not moved with the times.

That is why, the senior citizens perhaps get indignant, at the end of every year, when they are asked to submit the ‘life certificate’ in proof that they are still alive to continue to get the pension crumbs. Even the proposed hikes, if and when implemented, will not bring any substantial changes in the scenario.

Yes, the maximum pension anybody got in the recent years – whatever be the salary one received, say Rs 50,000 or a lakh - was around Rs1600. The pension paying authorities may justify this on the plea that the Employees’ Pension Scheme came into operation only on November 16, 1995 and the maximum pensionable service has to be calculated from that date although with some weightage to the past service as provided in the scheme.

The pension formula is: Monthly pension = pensionable salary X pensionable service /70. The maximum pensionable salary is Rs 6,500 (raised in phases from Rs 300 in 1952 to the present level, Rs 6,500 in 2001)  on which contributions are collected.   There is, of course, a provision for voluntary employer’s contribution without any ceiling. But this Gandhian concept didn’t work in business; not many are expected to go beyond the statutory limit. As a result, the EPF pensioners are getting just some token pension not sufficient to support their lives in the evening years of life.   

For instance, those who work for  full 35 years’ service from their date of employment  after 1995 (joined in 1995 and retiring in 2030) will  be getting a maximum Rs 3,250 as pension (50 per cent of Rs 6,500 – the insurable salary). So, how can one survive with that Rs 1,600 now or even with Rs 3,250 full pension in 2030?  Note these are maximum possible sums, not median figures.

In fact, many people are getting much lower than this sum. As per the minister of state for labour and employment’s  recent statement in the Rajya Sabha,  83 per cent of the EPF  pensioners are getting a monthly pension of less than Rs 1,000 while 27 per cent are getting still lower sum of less than Rs 500.

 So, the government proposes to raise the minimum pension to Rs 1,000. This was recommended some time back by the Pension Implementation Committee (a sub-committee of Central Board of Trustees of the  EPF). While asking for raising the minimum pension to Rs 1,000 as an interim measure, the committee had suggested for enhancing the rate of contribution into the Employees’ Pension Scheme by 0.63 per cent. Also there are proposals to enhance the PF ceiling from the existing Rs 6,500 to Rs 15,000 so that the maximum amount of pension could go up to Rs 7,500.

No relief

It is clear, even with this hike, if at all it takes effect, is not going to be of great relief to the wage earners and more so without additional burden on employees. Unfortunately the government feels that it is untenable, with the available resources, to give more to the pensioners.

A quick recapitulation of PF contribution, after the pensions came into being, is in order here. The employees contribute 12 per cent of their wages — not exceeding Rs 6,500 — towards PF. The employer adds another 3.67 per cent, taking the total PF contribution to 15.67 per cent. For pension Fund, the employer contributes 8.33 per cent and the central governments adds another 1.16, both together amounting to 9.49 per cent.

The provident fund contribution received during last three years 2009-12 was Rs1.51 lakh crore and the pension fund was 0.38 lakh crore. The total corpus of provident fund, invested and held in public account, was 2.37 lakh crore as of March 31, 2012 and that of pension fund Rs 1.62 lakh crore. These figures look very big but the actuarial assessment shows a deficit of thousands of crores in the fund even to meet the current level of pension obligation whereby recommendation pour in for higher contributions.

Whatever the reasons given the pension sum is illogically low. It is naturally disgusting to the employees to receive such meagre sums. Substantial number of them are receiving pension amount less than destitute and old age pensions. The situation is undoubtedly anomalous.  There is every reason to hike the monthly pension to all the EPF members; not some token amount, but towards some tangible benefit.

It is not only possible to do that, but the pension should be equal to 50 per cent of the last 12 months average salary, says Dr P Madhava Rao, senior international governance and state building expert and ILO’s resource person who made an in depth study of provident funds and pension schemes across the globe. While appreciating the ILO-102 norm of 50 per cent salary, he wants its (the ILO’s) definition should be the ‘total salary’ instead of ‘insurable’ salary which gave leverage to the pension administrators to fix lower limit like Rs 6,500.

So, there is every possibility to hike the pension to make it equal to 50 percent of the salary drawn during the final months of an employee’s service life. Since the government cannot shun its responsibility of a welfare state, it can enhance a little more towards its contribution to pension fund and can make the employers to pay more, particularly the big companies, with the norm of placing ‘heavier weights on broader shoulders’. Thus the government and other stake holders should make the life after retirement of the employee livable.