EPFO rebuts finance ministry claims over returns from NPS

Moneylife Digital Team 06 August 2013

EPFO disagrees with finance ministry's proposal to encourage its subscribers to shift to NPS and claims its own EPS provide better returns than the new pension system

Rebutting the claims of finance ministry over the new pension system (NPS), retirement fund body Employees' Provident Fund Organisation (EPFO) has said NPS does not provide better returns than its employees’ pension scheme-1995 (EPS).

EPFO also said it disagrees with finance ministry's proposal to encourage its subscribers to shift to NPS.

In response to a letter written by financial services secretary to labour secretary, the EPFO said, "If we take return of EPS as indicative return on the fund managed under EPS, then the annualised return between May 2009 to May 2013 will be 10.47%, which on the face of it, is higher than the return declared by NPS in its scheme for the central government."

Finance Ministry has written to the Labour Ministry saying that "The subscribers (of EPS) may be given an option to either remain with EPS or join NPS with the same contribution."

The ministry argued that NPS, which is self-sustaining pension system, could be a good substitute for EPS and would be beneficial for subscribers as they would get decent returns and adequate pension wealth.

Moreover, the Finance Ministry said, "The government would be free from any open ended and financially unsustainable liability of EPS..."

Disagreeing with the contention of the Finance Ministry, EPFO said that EPS scheme provides social security for lower income group people in their old age. In addition, it also provides pension to widow, children and dependents in case of death of the subscriber.

Under the EPS scheme, many interim benefits are provided. Subscribers can withdraw their contribution towards pension while withdrawing his or her EPF money. There is a lock in period of 15 years in NPS.

Moreover EPS subscribers get bonus of two years on completion of 20 years of service and there is provision of commutation or part withdrawal also. That is not available in NPS.

EPS's corpus size stood at Rs1.83 lakh crore while the same under NPS was at Rs29,852 crore as on March 2013.

EPFO has a subscriber base of over five crore and manages PF corpus of Rs3.7 lakh crore excluding the pension fund of Rs1.83 lakh crore.

Comments

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M G WARRIER

1 decade ago

NPS, in effect is a non-starter and is trying to pollute existing social security systems in its anxiety to remain at centre stage. If some proof is needed, please refer to the Business Standard interview(August 18) in which PFRDA Chairman has asserted that ‘NPS is designed to offer pension to every worker.’ Perhaps, the questions posed by Sreelatha Menon in the interview were more informative than the evasive and vague answers given by the PFRDA Chairman. His counter to the first question, ‘How can I have a view contradictory to what he (FM) says?’ set the tone and content of his defence of NPS.

Though government and to some extent the media have been marketing NPS as a solution for social security problems of future ‘senior citizens’ of India, it is common knowledge that the scheme was introduced through back-door to get over the impossible task of starting to make provision for an estimated pension liability of nearly 4 lakh crore rupees when 6th Pay Commission was finalizing its report in 2006.

Other than the new central government employees who joined service from January 1, 2004 and others (state government and PSU employees) for whom NPS was made compulsory, effective various dates thereafter whose contribution adds up to about 85% of the Rs35,000 crore corpus mentioned by PFRDA Chairman, the receipt from the 90 per cent workforce outside the organized sector so far is admittedly too low at Rs5,000 crore.

Now, the effort will be to swallow EPFO and other organizations or departments which are otherwise doing well. It is time for a mid-term review of the whole concept of NPS.