While the National Democratic Alliance had to grapple with the Unit Trust of India fiasco, the new government faces a Rs 1,700-crore (Rs 17 billion) unfunded gap in the Employees' Pension Scheme.
According to senior government officials, while the Employees' Provident Fund has managed to keep its 9 per cent interest rate promise by drawing from the fund's suspense account, an internal report of the labour ministry has revealed that the Employees' Pension Scheme for the organised sector has an unfunded gap of Rs 1,700 crore.
The latest available corpus size of EPS, as on March 31, 2001, is Rs 33,200 crore (Rs 332 billion). Although the pension scheme is evaluated by an actuary on an annual basis, the officials said the actuarial report was not made public.
While the finance ministry acknowledges that schemes like EPS are not sustainable, political pressures have so far resisted moves to reform the scheme.
The EPS, administered by the labour ministry, was introduced in November 1995, and is compulsory for all provident fund subscribers.
Under the scheme, 8.33 per cent of the basic salary (up to a maximum basic pay of Rs 6,500)
For example, if the basic salary is Rs 5,000, from the employer's matching contribution of Rs 600 (or 12 per cent of basic), Rs 417 goes into the EPS. The balance, Rs 183, goes into the PF account. If the basic pay is higher, say Rs 20,000, only Rs 541 a month (8.33 per cent of a maximum basic of Rs 6,500) from the employer's contribution of Rs 2,400 (12 per cent of basic) finds its way into the EPS. The balance, Rs 1,859, goes into the EPF account.
According to the officials, for the scheme to be sustainable, assured returns should be replaced by market-determined rates of return and the government's contribution of 1.16 per cent towards pension accruals should be gradually withdrawn.
They said with increasing longevity and defined pension, the unfunded gap would only increase, with the burden finally falling on to the government.
The way out
- Market-linked rates of return instead of assured pension
- Government's 1.16% contribution to be withdrawn
