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Labour min, TUs turn down finmin proposal to close EPS

In what could be called a major stand-off between the finance and labour ministries, the labour ministry and trade unions have turned down P Chidambaram?s idea of closing Employees? Pension Scheme under EPFO.

In what could be called a major stand-off between the finance and labour ministries, the labour ministry and trade unions have turned down P Chidambaram?s idea of closing Employees? Pension Scheme under EPFO. The scheme runs an unsustainable deficit of over R50,000 crore.

While finance minister P Chidambaram had proposed “closing” EPS scheme and switching over to the new pension scheme (NPS) regulated by PFRDA, the labour ministry has expressed reservations as it will require an approval from the central board of trustees of the EPFO and then an amendment to the EPF Act.

In a letter to former labour minister Mallikarjun Kharge last year, Chidambaram wrote, ?In view of the persistent deficit in EPS, it has been suggested repeatedly by the department of financial services that it would be better to cap the financial liability of the government by closing EPS at the earliest and switching over to NPS.?

?In view of the fact that financial soundness of EPS continues to be in question and that any parametric change to EPS may not yield to long-term financial sustainability of EPS, it is recommended that all new employees covered under the EPF Act may be brought under NPS on mandatory basis rather than tinkering with the benefit structure to guarantee a minimum pension of R1,000,? Chidambaram said in the letter.

The labour ministry officials sought to play down the proposal saying it may not be easy to wind up the defined benefit scheme which is the only safety net for the organised sector workers after retirement.

?There is no plans for an amendment to EPF Act either in the monsoon session or in the winter session,? a senior official said when asked if there was a move to wind up loss-making scheme. With elections nearing, the labour ministry is in no hurry to propose bold reforms measures that goes against the interest of the workers, the official said on condition of anonymity.

The labour ministry has long been demanding the budgetary provision for EPS by one-time R14,000 crore or R600 crore annually so that the minimum pension amount can be raised to R1,000 per month from the present R540, but the finance ministry has turned down the proposals and in turn has asked EPFO to look into other ways of garnering the funds.

Trade unions were unhappy at the proposal. ?We will oppose any such move. EPS is the only defined benefit scheme left and moving to a defined contribution scheme like NPS is not desired. Moreover, why should the government expose the workers to the vagaries of the market,? said DL Sachdev, the national secretary of All India Trade Union Congress.

Instead, the trade unions are demanding raising the minimum pension amount to R1,000 per month, he said, adding the unions will oppose the finance ministry’s proposal if it is taken up at the next CBT meeting.

Since last year, EPFO has been exploring various options like increasing the limit of basic salary from R6,500 to R15,000 for mandatory EPFO enrolment, increasing the EPS contribution from 8.33% to 9%, updating the age profile for better actuarial calculation and improving the returns on investment. EPFO has also sought World Bank’s assistance in assessing the EPS liabilities.

According to valuations by actuarial firms over last few decades, EPS had a surplus of R1,689 crore in 1995-96 which came down to R70 crore by 1999-2000. The EPS corpus slipped to negative territory in 2000-01 and widened to R41,119 crore by 2006-07. In 2009-10, the deficit had widened beyond R50,000 crore.

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First published on: 07-08-2013 at 03:17 IST
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