In Focus

Neo-liberal Reforms in the Pension System

– Shankar

Tens of thousands of women garment workers of Peenya Industrial Estate in Bangalore spontaneously marched on the streets in 2001 against reported prohibition of early withdrawals from and settlement of PF accounts. It was like a local uprising of sorts by women garment workers in the age group of 18-25. The explosive news of prohibition of early PF settlement led to such an angry outburst from the unorganized women workers because it shattered their dreams of using their pension funds for meeting expenses of their marriage and their future life. Then, the struggle was contained with the announcement by the PF Commissioner and the Chief Minister that it was only a rumour. But it is not a rumour any more.

The government is preparing for a New Pension Scheme (NPS) that will prohibit early withdrawals and will involve private parties in running pension schemes, parties which will engage in speculative activities with massive funds accrued from the hard toil and sweat of ordinary workers. The UPA Government has introduced a Pension Fund Regulation and Development Authority (PFRDA) Bill. The Government also reduced interest rate on workers’ EPF funds but again raised it under popular pressure. Above all, a new defined contributory pension scheme has already been made mandatory for all central government employees recruited since January 2004. The governments of Andhra Pradesh, Chhattisgarh, Himachal Pradesh, Jharkhand, Manipur, Rajasthan and Tamil Nadu have already notified and introduced defined contributory pension scheme and intend to join the NPS. Other state governments have evinced interest in joining NPS when the architecture and mechanism of PFRDA is ready. Under the proposed reform, billions of rupees collected from salaried employees and poor, unorganized workers would be handed over on a platter to domestic and multinational financial companies for speculative activities in capital markets. Many multinational companies are already eyeing the savings of the aged, in the form of pension funds. Leading wealth-management companies in India and abroad like DSP Merrill Lynch, Templeton, PNB-Vijaya Bank, Birla Sunlife, Aviva, LIC, UTI Mutual Fund, ICICI Prudential and HDFC Standard Life had evinced interest for managing long-term pension savings. One of the American multinational finance companies, Principal International, worth over $117 billion in assets under management and ranked USA’s fourth largest life insurance company by premium income, is planning to enter Indian financial markets as an investment advisor before taking over as a pension fund manager after the PFRDA bill is passed.

The government is shirking its responsibility of providing social security net for the people. Even the employees covered under civil service pension scheme who are enjoying the present pay-as-you-go scheme now will also be forced to become part of the new pension scheme which is ‘defined contributory’ in nature. The switchover from ‘Defined Benefit System’ to ‘Defined Contributory System’ of pensions will have larger consequences for the workers. The so-called ‘minimalist’ role of the state, in fact, amounts to ‘no role’ for the state in terms of social security measures. It is amply clear from the fact that the government is planning to withdraw even the minimum contribution of 1.66 per cent committed to the Employees Pension Scheme (EPS) handled by the Employees Provident Fund Organisation (EPFO). The proposed redefined role of the state now is only to collect the money from the people for their old age through post offices and bank branches which are called ‘Points of Presence’ (POP), gather them in the depositaries and hand them over to the private financial companies called ‘Professional Fund Managers’ and regulate all transactions through ‘Pension Fund Regulatory and Development Authority’ (PFRDA). Thus the cycle of ‘social security’ turning into its opposite of ‘social insecurity’ is complete with privatization of fund management in order to develop the capital base of profit-hungry bourgeoisie through equity markets – all in the name of taking care of elders.

During the NDA regime, the Ministry of Social Justice and Empowerment appointed a committee called OASIS (Old Age Social and Income Security), also known as Dave Committee, in 1998 in order to go into the issues of pension and old age security. The committee presented its report in 2000. Based on the report, the government promulgated an ordinance in December 2004. The ordinance was referred to a Parliamentary Standing Committee on Finance for further discussion in view of stern opposition from a section of MPs.

The huge money involved in pension funds, because of overwhelmingly large number of population in the country (even if less percentage of working people are persuaded to save all through their life career), is a major attraction for financial scamsters and looters. Precisely, this is the reason why multinational finance companies are invading the Indian capital market and are shedding crocodile tears about the well being in old age of hundreds of millions of unorganized and informal workforce.

It is claimed that the New Pension Scheme is specially designed for the workers of unorganized and informal sector. Defined contributory, individually-funded and individual-choice-based pension system might be successful for some other country, but it cannot be for India . India is a vast, agriculture-dominated country. More than 70 percent of workforce is still dependent on agriculture and rural economy. The number of unemployed does not have any parallel all over the globe. The government itself has admitted this fact and said that the problem of unemployment can very well become explosive within a decade unless 1 crore jobs are created every year. In such a situation, saving for one’s old age, even if it is a bare minimum 3 rupees a day, in addition to eking out one’s daily survival, is a story of grim struggle. In Indian conditions, defined contributory pension system is inappropriate when more than 90 percent of workers are unsure of their daily employment and food. The close and complex interrelation and interconnection between employment, wages, health care and old-age savings out of earnings in working life is a major area of concern which is conveniently forgotten or concealed by the powers that be.

It is being said that profitable investment choices that can earn optimum returns is the key for earning large sums for the old age. It is the height of absurdity. To quote Comrade Dipankar, “If anything, globalisation has only led to a heightened globalised crisis, sharply exposing the mismatch between the narrow conditions of bourgeois society and the enormity of wealth and want. After all, finance capital cannot be infinitely self-generating or self-sustaining; it is parasitic capital, and at the end of the day, it has to have some correspondence, however intricately mediated with the real economy of production. It takes one reality check to reassert the primacy of the real over virtual.” On such a reality check it can be found that, as Lenin said, huge chunks of finance worth billions of dollars can be, and have indeed been, wiped out overnight. If pension funds are used for speculative activities, the hard earned money of the working people can also be wiped out instead of increasing it manifold as suggested by the designers of private pension funds.

Our past experiences in the capital markets are only on the negative side – right from the stock market scam to the recent UTI scam. The ‘all powerful’ government was unable to do anything but remained a mere spectator condoning scams after scams. Indian working class should rise and stand firmly against the naked, criminal loot in the name of New Pension System.

As per the 1991 Census data, India has an estimated 314 million workers. Of the working population, 15.2% (47 million) are regular salaried employees while over 53% (166 million) are self-employed and 31% (97 million) are casual/contract workers. Of the salaried employees, approximately 23% (11.13 million) are employed by the Central, State and UT Governments and Departments (including Post & Telegraph, armed forces and railways). They are eligible for defined benefit pension, funded entirely by the Government. 49% (23.18 million) of the salaried (non-Government) workers are covered by a mandatory EPF and the EPS. Thus, barely 34 million (or less than 11%) of the estimated working population in India is eligible to participate in formal provisions meant to provide old age income security.

On the other hand, 28% (13 million) of the salaried workforce, and approximately 268 million workers in the unorganised sector (including farmers, shopkeepers, professionals, taxi-drivers, casual/contract labour etc.) are excluded from participating in the existing provisions. Therefore, almost 90% of India ’s workforce is not eligible to participate in any scheme that enables them to save for economic security during their old age.

Present demographics suggest that a person who survives till age 60 has, on average, 17 years of life ahead of him/her. This number may rise to 25 years in the coming decade. This would mean that a person who retires at the age of 60 has to plan to live for a quarter century without a wage income.