The resistance of workers and trade unions to pension “reforms” rests on their contention that they are aimed at transferring the responsibility of social security from the government to the market.
At the heart of the issue is the National Pension System (NPS), the new over-arching framework for the new pension regime that, since 2010, also includes the Swavalamban scheme for the vast mass of unorganised workers.
Redefining social security
Ever since the National Democratic Alliance government initiated the “reforms” in the pension sector, the trade unions have taken exception to two key aspects of the new regime, which is being steered by the Pension Fund Regulatory and Development Authority (PFRDA).
The first — and perhaps most contentious issue — pertains to the very nature of what a pension is.
The unions regard the new system as one that marks a fundamental shift from a “defined benefit” system to a “contributory” scheme.
Traditionally, pensions in India were based on a system in which the worker could predict with a fair degree of accuracy his/her income stream upon retirement. Both contributions and the monthly income streams were usually defined as a fraction of the workers’ salary under the “defined benefit” system.
The unions argue that the changeover to a “defined contribution” system is not merely a shift in the methodology used to calculate pensions but is philosophically grounded in the notion that the markets — not the government — ought to serve as the vehicle for the delivery of this important social security benefit.
They point to Supreme Court rulings, which stated that pensions were not a bounty; that they are a reward for services rendered by a worker during his productive span; and that they are an instrument of social welfare and social justice, a worthy objective even if only a small fraction of the Indian workers had access to it.
The second issue, which pertains to the government’s ‘abdication’ of its responsibility to the working class, is the push of pension funds governed by the PFRDA to a market-based system, says S. Prasanna Kumar, general secretary, Karnataka State Committee of the Centre of Indian Trade Unions (CITU). Workers who need to make a mandatory contribution of 10 per cent of their salary to their own pensions are at the mercy of fund managers, many of them in the private sector, he observes.
The immediate implication of a market-based approach, which the Left alleges is based on a Working Paper on pensions published by the International Monetary Fund more than a decade ago, is that workers no longer have a clear visibility of their likely income stream after they retire.
Tales of scam
Mr. Prasanna Kumar points out that the many tales of pension scams from across the world — from the advanced countries such as the United States and the United Kingdom to developing countries such as Chile and Argentina, which embraced market-based pension ‘reforms’ — do not inspire confidence that workers’ contributions will either be safe or yield a “decent return at the end of their long working life.”
“The logic that workers’ long-term committed contributions cannot be entitled to any kind of assured returns is based on market fundamentalism,” he argues. This strict no-no arises from the logic of not only delinking the government from a critical component of social security, but is premised on the misplaced but abiding faith in markets.
Unfair to workers
Even if the notion that pensions are part of a government’s larger social objective is jettisoned, the new system is unfair even in purely financial terms because it fails to balance the interests of the workers with those who manage the pensions. Critics of the NPS argue that while workers are mandatorily required to commit savings throughout their working life, the managers are not obliged to guarantee anything in return. This implies that the workers bear the burden of uncertain returns.
Trade unions argue that Swavalamban could derail quickly for the same reason. The PFRDA prescribes several user fees and charges, which are expected to account for a significant proportion of the workers’ contribution, even under Swavalamban, which is specifically targeted at the weakest segment of the working class.
These fund managers are expected to function like Mutual Funds, which in India have demonstrated a high mortality rate. No wonder, the trade unions even have their own description for the NPS: the National Pauperisation Scheme.