New Govt Staff To Pay 10% Of Salary As Pension Liability

Signalling a major departure in pension rules, government employees joining from October this year will have to contribute 10 per cent of their salary towards their pension liability, while the government will chip in with another 10 per cent, even as the ministries wrestle among themselves on who will guide the emerging sector.

This will mark a major difference in the pension rules between the new and the existing government servants as inflation-indexed pension has been one of the key attraction for entering government service.

But now the income generated by the pension funds from this combined contribution will determine the pension package for the new employees after their retirement. For the new recruits, this 10 per cent will be over the current 10 per cent that all government employees pay towards their provident fund.

Currently pension for government employees is determined simply on the basis of their last pay. The cabinet note prepared by the department of personnel and training (DoPT), is about the only clear decision that has been taken after the Budget announcement of finance minister Yashwant Sinha to replace the unfunded pension liability of the government for its employees with a funded pension system.

The government is still to set up the promised high powered committee of experts to guide reforms in this sector, due to the bickering between the ministries of finance, DoPT, labour and social welfare on who will be the nodal ministry.

While the finance ministry has set up a pension reforms cell after the Budget, sources said that the subject of pension liability for government employees was transferred to the DoPT after Yashwant Sinha was told that the department of economic affairs does not have the authority to frame any policy for government employees on pensions.

And reflecting the confusion within the government on how to revise the pension scene, the note says these terms and conditions can change on the recommendations of the high powered committee, which is now expected to be set up in June.

Sources said the committee will also have to work out the modalities of how and which private fund managers will get the nod. And the IRDA is yet to formulate the modalities on setting up such funds.

Besides, such funds will have to incur a huge cost for establishing an accounts mechanism that will be able to reach pensioners to all corners of the country. The problem is compounded as the existing system of pension records for the Rs 22,000 crore sector is very inadequate.

For instance in this Budget, the government has made a savings of over Rs 1500 crore on defence pensions, while in 2000-01, it ran up an extra bill of about Rs 4000 crore on total pension liabilities.