The Indian Express | 1 week ago | 18-03-2023 | 11:45 am
A HIGH actuarial deficit in the Employees’ Pension Scheme (EPS) reflecting the gap between the net present value (NPV) of contribution and benefits, and a progressive increase in the number of pensioners going forward, are two key concerns the Employees’ Provident Fund Organisation (EPFO) is grappling with as it attempts to implement a higher pension option for subscribers following a decision by the Supreme Court.The EPS is the social security pension scheme offered by the EPFO to organised sector workers.In its response during the proceedings in the Supreme Court last year, the EPFO had pegged the pension fund’s actuarial deficit rising to over Rs 15 lakh crore for implementation of the higher pension plan after the Kerala High Court set aside the modifications to EPS in 2014, two officials aware of the debate among those managing the Fund said.“The projected difference between the NPV of contribution and NPV of benefit is very large and it is one of the main reasons the Fund opposed it in appeals in the earlier court cases,” one of the officials cited above said. But the Supreme Court decision provided some relief to the EPFO which reduced the number of members/ pensioners who could gain from higher pension options.An official said the government is still in the process of figuring out the actuarial deficit post the Supreme Court decision. “It will be higher than what is stated in the latest annual report of the EPFO, but will definitely not be as high as Rs 15 lakh crore projected after the Kerala High Court judgement,” the official said.The total number of pensioners under EPS has more than doubled to 72.73 lakh in 2021-22 compared with 35.10 lakh in 2009-10. “In the coming years, given India’s demographic dividend, the inflows to the pension fund of the EPS are expected to be high given the addition to its membership. But when this progressively tapers off, the number of pensioners will be disproportionate to the number of existing members or new entrants. This is when the problem will kick in,” said another official in the government.According to Report of the Technical Group on Population Projections for India and States 2011-2036, 73.5 crore people or 60.7 per cent of India’s population was in the working age group — 15-59 years —in 2011 and this population group is expected to increase to 98.85 crore in 2036. While the working age population is likely to then taper off, due to increasing longevity, India’s population in the age group of 60 years and above is projected to increase from 10.15 crore in 2011 to 22.74 crore in 2036.In the Supreme Court, the EPFO is learnt to have cited an actual calculation of 21,000 pensioners, detailing the difference between their contributions and upfront payment of pension arrears to be over Rs 250 crore. In addition, their monthly pension had risen by more than three times to almost Rs 15 crore.In a defined benefit scheme, the actuarial deficit is the difference between the fund’s assets and the present value of its liabilities (future payment obligations) under a particular set of valuation assumptions. The EPS – though described by the EPFO as a defined contribution and defined benefit scheme – is a scheme tilted more in favour of defined benefits than defined contributions.The issue of the projected actuarial deficit for the EPS was flagged in the latest annual report of EPFO for 2021-22, which stated that under EPS, given the increase in the number of pensioners, the amount disbursed as pension has shown a steady increase over the years even though “the Fund has consistently had more receipts than payment outgo” since its inception. “However, the Fund has not witnessed any cash flow problems till now, in spite of there being a projected actuarial deficit in the valuation of the Fund,” it noted.As per the EPFO report’s combined valuation results as on March 31, 2016 and March 31, 2017, the net liability of the pension fund had stood at Rs 15,531.91 crore as against a surplus of Rs 5,026.87 crore as on March 31, 2015. The net liability for the preceding year as on March 31, 2014 was Rs 7,832.74 crore.The value of the pension fund corpus stood at Rs 3.18 lakh crore as per the combined report for 2016 and 2017, while the present value of future contribution stood Rs 4.04 lakh crore. This sums up to Rs 7.22 lakh crore, which when seen against the present value of benefits of Rs 7.38 lakh crore, resulted in a net liability of Rs 15,531.91 crore.A detailed query sent to the EPFO by The Indian Express on this issue remained unanswered.Trade unions have flagged concerns about the link provided by the EPFO to exercise the option for higher pension, stating it first asks whether the subscriber had opted for higher pension benefit while joining the EPS-95 scheme, which most had not opted for and thus, the link is programmed to deny the benefits of the Supreme Court ruling to the eligible pensioners.The actuarial deficit, or the difference between the net present value of benefits and contributions of all members, may be manageable now, but is expected to rise sharply in coming decades as the number of pensioners swell. The government is keen to ensure this does not jeopardise social security for low wage earners.In a series of letters to the EPFO earlier this month, the Centre of Indian Trade Unions (CITU) had also raised doubts on the disclaimers put out on the portal. In its letter, it mentioned how the subscribers opting for the higher pension benefit have to undertake a declaration empowering the Central government to amend the scheme “as it may deem fit”.“As such, the pension calculation formula has already been specified/defined in the Scheme…then why is such a disclaimer inserted?” the letter said. Some pensioners have also filed review petitions in various state high courts.The EPFO has extended the deadline to opt for higher pension to May 3 from the March deadline earlier. The Supreme Court in a ruling on November 4 had upheld the amendments to the Employees’ Pension (Amendment) Scheme, 2014, implying another chance for employees who were existing EPS members as on September 1, 2014 to contribute up to 8.33 per cent of their ‘actual’ salaries — as against 8.33 per cent of the pensionable salary capped at Rs 15,000 a month — towards pension.The EPS provides employees with pension after the age of 58, if they have rendered at least 10 years of service and retired at age 58. The monthly pension is computed based on this formula: Monthly pension = pensionable salary x pensionable service / 70, on a pro-rata basis linked to maximum monthly pensionable salary of Rs 6,500 for pensionable service up to September 1, 2014 and Rs 15,000 thereafter.