Some States are falling behind in making contributions towards their employees’ retirement savings under the New Pension Scheme, the Finance Ministry indicated on Tuesday, flagging “an increasing divergence of practices between different State Governments” in the way they handle pension obligations for staff recruited after 2004.
While a majority of the States are paying the correct dues towards their employees’ retirement accounts under the NPS, “some have issued orders adopting NPS but not made due contributions”, Minister of State for Finance Bhagwat Karad informed the Rajya Sabha, in reply to a query from former Bihar Finance Minister and BJP leader Sushil Kumar Modi.
“Some of the States have followed or have indicated a decision to follow a system of pay-as-you-go with defined benefits,” Mr. Karad said, referring to States that have opted for, or are swaying towards the reintroduction of the Old Pension Scheme (OPS) that provided guaranteed retirement incomes.
Low inflows from WB, TN
Although the Ministry did not name the States failing to pay their NPS dues, data on States’ contributions over the last five years into what is now referred to as the National Pension System suggests unusually low inflows from a few States in comparison to others.
While it cannot be ascertained if their lower contributions are driven by fewer employees being recruited since 2004, West Bengal and Tamil Nadu have contributed just ₹44.7 and ₹42.1 crore into the NPS between April 2018 and February 2023.
By contrast, over the same period, Karnataka remitted ₹13,813 crore, Haryana about ₹9,800 crore, and even smaller states like Bihar and Uttarakhand contributed an average ₹2,000 crore and ₹1,000 crore a year, respectively.
Returning to OPS
Maharashtra, which is now mulling a move away from the NPS, has remitted ₹26,720 crore over this period, but may be trying to catch up on past dues this year, as its NPS contributions in the 11 months till February 2023 were ₹11,345 crore, more than double the ₹5,446 crore remitted in 2021-22. On the other hand, Andhra Pradesh, which had contributed ₹2,057 crore in 2021-22, has only transferred ₹777.77 crore to the NPS in the first 11 months of 2022-23.
“In the case of States that have been on pay-as-you-go system or have now indicated a shift to such system and those who have not made the contributions, the fiscal deficit of the States does not reflect the contributions made by State towards future liabilities for payment of pension. Whereas, States which have made necessary contributions towards future pension obligation may give the impression of a higher fiscal deficit,” Mr. Karad underlined.
Rajasthan, Chhattisgarh, Jharkhand, Punjab, and Himachal Pradesh have informed the Pension Fund Regulatory and Development Authority, which administers the NPS, about their decision to restart the OPS for their State employees and have requested a refund of the corpus accumulated under NPS. Mr. Karad, however, pointed out that there are no provisions in place that allow the accumulated NPS corpus of its members to be “refunded and deposited back” to the State Government.
