Tamil Nadu government in a dilemma over reintroducing old pension scheme

At present, two pension schemes are in place — contributory pension scheme that covers about six lakh employees and the old pension scheme which takes care of approximately 3.15 lakh employees and 7.15 lakh pensioners. According to estimates, by 2032-33, salaries and pensions will take away 100% of the revenue receipts

March 30, 2023 10:35 pm | Updated March 31, 2023 02:12 pm IST - CHENNAI

Members of Joint Action Committee of Tamil Nadu Teachers Organisation and Government Employees Organisations (JACTTO-GEO) staging a road blockade opposite to Collectorate in Vellore demanding to revert to the old pension scheme. Representational image. File

Members of Joint Action Committee of Tamil Nadu Teachers Organisation and Government Employees Organisations (JACTTO-GEO) staging a road blockade opposite to Collectorate in Vellore demanding to revert to the old pension scheme. Representational image. File | Photo Credit: VENKATACHALAPATHY C

The State government appears to be in a fix over the issue of restoration of the old pension scheme (OPS) for its employees.

The reason is not far to seek. If the scheme is revived, salaries and pensions alone will consume a large portion of revenue receipts (RR) of the government in no time, leaving limited room for implementing welfare measures. Even now, they constitute about 40% of RR.

At present, two pension schemes are in place. While the contributory pension scheme (CPS) covers about six lakh employees; the OPS takes care of approximately 3.15 lakh employees and 7.15 lakh pensioners.

According to an estimate, by 2032-33, the two components of the expenditure will account for 100% of the revenue receipts. On an average, 3% of the government employees retire every year. Though Tamil Nadu has not joined the National Pension System (NPS) for its employees, the accrued amounts under the CPS have been invested with the LIC.

But, the electoral promise on the revival of the scheme, made by the ruling DMK in the run-up to the 2021 Assembly poll, is being recollected by many parties and associations of the employees. One criticism against the latest State Budget is that there is no word on the issue. So far, the government has been silent on the issue except for stating the report submitted by an official committee on the issue nearly five years ago is “under examination.”

Policy makers and economists are of the view that there are many options before the government. One is the formula mooted by the Andhra Pradesh government last year to its employees, who, however, rejected it. Holding on to the contributory character of the NPS, the proposal guaranteed 33% of basic pay as pension. Another is that the government can increase its contribution, which is 10% now as it matches the subscription of the employees.

The Central government, since April 2019, is contributing 14% under the NPS for its employees. To provide greater freedom to the employees at the time of exit or retirement, the quantum of lumpsum payment can be raised to 100% of the corpus instead of the present arrangement of commutation of 60% and the utilisation of the remaining 40% by investing in an annuity scheme. This option can be made voluntary and suggested to those who can make investment in the manner of their choice.

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