Sreelatha Menon: Old age blues

After food, education and information, pension is being sought as a fundamental right

Old age should be cushioned with an assurance of minimum necessities in the form of pension. But, for a majority in India, there is either nothing or very little. Recently, Labour Minister Mallikarjun Kharge said in Parliament that 83 per cent of the 55 million beneficiaries of the Employees’ Pension Scheme (EPS) get a pension of less than Rs 1,000 a month.

This is despite both workers and employers paying towards the fund at the rate of 8.33 per cent. Also, the government puts a mere 1.16 per cent of the worker’s salary or about Rs 990 crore a year.

It was pointed out that if the government was to give 8.33 per cent or about Rs 7,000 crore every year, each worker would get a pension of at least Rs 3,000 a month.

On the other hand, government workers who pay nothing get almost half their salary as pension. Railway and defence pensions are as attractive. Then, there is the National Old Age Pension Scheme for the poor, which is non-contributory and shared by the Centre and the states.

The Centre spends about Rs 8,400 crore annually to provide Rs 200 to people above the age of 65. States enhance this amount by adding their share and, whether or not it helps the aged, it helps political parties lure voters. Goa in its recent state Budget increased the pension amount to Rs 2,000 a month, the highest in the country.

According to a study in 2005, the government was spending Rs 40,000 crore on pensions alone. The railways, for instance, were spending 14 per cent of its Budget on pensions.

A new demand has been raised now — a universal non-contributory pension as a fundamental right. A group of activists and economists have floated a Pension Parishad, saying this scheme would cover 100 million people and cost Rs 2 lakh crore, or two per cent of the gross domestic product (GDP), to ensure a pension of at least Rs 2,000 a month or half the prevailing minimum wage.

Even those who receive pension under EPS would be eligible to draw this pension, they say. The model cited by Aruna Roy-led activists is a Brazilian one, where a pension equal to the minimum wage is guaranteed to all poor and old. It costs Brazil two per cent of its GDP.

The Parishad, however, is not demanding reforms in the existing schemes. Economist and member Ravi Srivastava expresses surprise that a contributory scheme could yield pensions as low as Rs 1,000 a month.

Despite a good universal non-contributory model, Brazil is a bad example as far as its contributory pensions are concerned. The Economist recently wrote how Brazil, inspite of a small population of aged people, spends 14 per cent of its GDP on pension. Brazil’s pension is among the world’s most generous, replacing 75 per cent of the average income, it says.

Under its contributory scheme, workers can choose to retire early with big pension amounts. Brazilians need to contribute for just 15 years to get their full salary as pension. Hence, many retire as early as 45 years of age. The family inherits the entire pension, too.

But this has been at the cost of the younger generation and needs such as education in Brazil. Politicians find pension attractive as much as aged people. For the politicians, nothing can be more populist to earn votes, even if it is at the expense of courting bankruptcy in future.

Pension reforms are either stuck or never even attempted, as these are bitter pills that may not yield immediate gains. Hence, EPS is a mess, as Srivastava agrees, though seeking its reforms is not part of the Parishad’s agenda either.

However, universal pension could indeed find takers — especially in the present government, which is ready to clutch at any straw that would lead it across the next elections.