Given the manner in which the viability gap in the EPFO’s Employees’ Pension Scheme (EPS) has been rising in each actuarial valuation, the latest number of R10,855 crore for the gap is a big positive—the last report, for FY10, put the gap at about R54,000 crore. How this gap has fallen seems nothing short of a miracle, but the reason EPS officials claim is that, now that the organisation has compiled the actual data for 58% of its subscribers, it finds the age-profile is so predominantly young, there is little to worry about. The way the EPS calculates it, the NPV of the net liability towards pensioners is R3.2 lakh crore while the NPV of all contributions is R1.5 lakh crore—factor in the R1.6 lakh crore corpus of the EPS and you’re left with a R10,855 crore gap.
While this is reassuring, such analyses are very sensitive to interest rate changes, so can go haywire as interest rates change. Equally true, it is difficult to project future contributions accurately especially if the NPS takes off. Most important, given the structure of India’s population, the EPS can only be in trouble after a few decades when the proportion of those contributing to the fund becomes bigger than those taking out from it. The time to fix the scheme is now, whether that means greater contributions from the government or from the employer—or by curtailing benefits—is a different matter.