|Pensioning off UPA|
|Tuesday, 06 December 2011 00:00|
UPA in a bind with Mamata opposing Pension Bill now
If it wasn’t bad enough that FDI in retail has been shelved thanks to West Bengal CM Mamata Banerjee’s opposition, it appears the same fate may await the Pension Bill since the Congress Party’s mercurial ally is believed to have reservations about this as well. And given the fact that the Pension Bill is a ‘money bill’ over which the government can fall, the government will be very cautious about introducing it if key allies are opposed to it—the flip side is that, if the Lok Sabha passes it, then the fact that the Rajya Sabha doesn’t is irrelevant. Theoretically, the BJP can help pass the Pension Bill since it began pension reforms in 2001, but the UPA Pension Bill isn’t what the Standing Committee headed by the BJP’s Yashwant Sinha wants. In other words, the UPA’s capacity to legislate key reforms appears to have been diminished thanks to its allies, and we’re not even talking of the BJP’s disruptive tactics.
It’s not quite clear what Banerjee’s objections are since she’s said she will express her views when the time comes. But given that she’s said people’s lifetime savings ‘for pensions, gratuity and provident fund … should not be destroyed’, presumably she has the same objection the BJP has. Apart from wanting the FDI limits to be prescribed in the Bill (this will ensure the government cannot raise the limit without it being voted by Parliament), the BJP wants a minimum assured return on people’s savings. While that sounds very good, the fact is that guaranteed returns are what ensured US-64 went bust and that the 2010 hole in the Employees Pension Scheme (EPS) is at least R50,000 crore. As opposed to this, the New Pension Scheme (NPS) assures that at least one pension plan offered will be a ‘safe’ one—all funds in this plan will have to be invested in G-Secs or some equally secure security but no returns will be guaranteed. The reason why NPS has opted for this instead of an assured return is simple: plans that look fully funded at one level of interest rate become unfunded at lower rates of interest. So, when it began in the mid-90s, when interest rates were higher, the EPS promise of a pension equal to half the last salary was a viable proposition—as interest rates fell, however, the hole in EPS kept rising. Which is why EPS’s latest proposal, to offer a minimum R1,000 monthly pension, is dangerous since pensions have to be linked to the amount of contribution and the length of the period over which contributions are made—since 14 lakh of the 35 lakh pensioners under EPS get monthly pensions well below R500, the unfunded liability will rise many times. Perhaps it’s time the EPS gap be made part of the implicit government debt statistics.