Finance Secretary T V Somanathan to head panel on pension schemes: FM

Finance Secretary T V Somanathan would head a committee to look into the pension issues of government employees, Finance Minister Nirmala Sitharaman said on Friday.

The move comes in the backdrop of a number of states ditching the New Pension Scheme (NPS) and moving back to the older one for their employees.

“I propose to set up a committee under the finance secretary to look into the issue of pensions and evolve an approach which addresses the needs of employees while maintaining fiscal prudence to protect common citizens,” Sitharaman said while speaking on the Finance Bill amid a din in the Lok Sabha.

Though she wanted to speak about 10 key provisions of the Bill, she could only announce the setting up of the panel, and another issue, as the Bill was passed in the Lok Sabha without discussion.

“The approach will be designed for adoption by both the central government and state governments," the finance minister said.

Later, speaking with reporters, Somanathan said the panel would try to address all stakeholders’ concerns and look into issues being raised by all quarters. The formation of the panel, its members, and terms of reference have not yet been notified.

Several non-BJP states have decided to revert to the dearness allowance-linked Old Pension Scheme (OPS) and also employee organisations in some other states are raising demand for the same.

The state governments of Rajasthan, Chhattisgarh, Jharkhand, Punjab, and Himachal Pradesh have informed the Centre about their decision to revert to the OPS and have requested a refund of corpus accumulated under the NPS.

The OPS offers fixed pensions to employees after retirement. The pension amount is 50 per cent of their last drawn salary. The NPS, meanwhile, is an investment-cum-pension scheme.

NPS contributions are invested in securities like debt and equity instruments. Thus, it does not guarantee fixed pensions but provides high returns in the long term, resulting in a significant lump sum and monthly pensions.

The Centre has been allowing states to increase their borrowing limits by the same amount as which they are annually contributing to new NPS accounts for their state government employees. Those states reverting to the OPS will not get that much extra borrowing room.

Meanwhile, Andhra Pradesh has proposed a Guaranteed Pension Scheme (GPS), which combines the elements OPS and NPS. The scheme, proposed for the first time in April 2022, offers a guaranteed pension of 33 per cent of the last drawn basic pay without any deduction to the state government employees. For this, they would need to contribute 10 per cent of their basic salary every month, and the state government will match it.