Money > Budget > Budget News & Analysis FEBRUARY 21, 2002 | 14:35 IST    rediff.com 


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Pension liability set to add to Sinha's woes

Subhomoy Bhattacharjee

The pension reforms committee report for government employees is expected to add to the pensionary liability of the government for the next fiscal.

The report is expected to recommend the investment of a part of the pension fund in equity markets, but within the ceiling set by the Insurance Development Regulatory Authority.

The report of the committee, which was finalised last week, envisages a 10 per cent contribution by all newly-recruited government servants along with a similar contribution by the government.

Sources said the calculation is based on the premise that with such a corpus, the employees can expect to earn a comparable pension to those who retire from the service under the current unfunded pension scheme.

However, this will mean that from the next fiscal, the government will have to pay for both the pension liability of the retired staff, which is expected to touch Rs 220 billion for the current fiscal, as well as for the 10 per cent contribution to the pension fund of the newly-employed staff. Since the present number of recruits exceeds 35,000 per year, the total amount will be hefty.

The committee's suggestion that the corpus could be invested in equity markets within the permissible limits, is a departure from the existing practice of the Employees Provident Fund for private sector employees. The EPF invests only 10 per cent of the incremental capital of the fund in equity markets.

Sources said since there were no actuaries in the committee, it has done a rule-of-thumb calculation for the cost of the scheme to the government.

However, falling interest rates can create problems as contributions from employees and the government will have to be raised to ensure a comparable pension after an average service of 30 years.

The committee was appointed by finance minister Yashwant Sinha as part of his Budget promise.

The original deadline for the report to be submitted was September 30, 2001, but it was postponed to March 31.

The government was burdened with a whopping Rs 40 billion rise in pension liability in the wake of the Fifth Pay Commission report in 1999-2000. This was excluding the railways and the defence liabilities.

Now, the central liability is expected to touch Rs 280 billion by 2006 thanks to the rising life expectancy of pensioners and a larger retiring work force. The liability is in addition to the government's cost towards wages of its over 3.4 million employees.

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