In a groundbreaking revelation following a Supreme Court verdict on November 3, the long-awaited report from a Kerala government-appointed committee has finally seen the light of day. The three-member committee, established in 2018 to scrutinise Kerala’s contributory pension scheme, submitted its report in April 2021. However, it remained under wraps until the recent intervention by the highest court. A cabinet sub-committee was swiftly formed last week to delve into the committee’s findings.
The National Pension System (NPS) Unveiled
Starting in 2004, this contributory pension scheme evolved beyond central government employees, encompassing various states. Kerala joined the NPS league in April 2013, steering away from the previous fixed amount pension system funded by taxpayers.
Under NPS, employees and employers contribute to a fund during employment, creating a personal annuity scheme upon retirement. The duration of service and individual age play crucial roles in determining the pension amount. Over the years, the Central government increased its contribution, now standing at 14 percent, fostering a rise to 21 percent of gross salary at the individual level.
Kerala’s Pension Quandary
In Kerala, the burgeoning pension liability has strained the state’s revenue. With a higher life expectancy post-retirement and a retirement age of 60, the state faces significant financial pressure. The state budget for 2023-24 reveals an estimated expenditure of ₹94,649 crore, with 70 percent allocated to committed expenditure, including salaries, pensions, and interest.
Introduced in 2013 by the Congress government, Kerala’s NPS scheme has faced scrutiny. The CPI(M) government initiated a review committee in 2018, fulfilling a pre-election promise. Last week, the Supreme Court, acting on a petition from the CPI-affiliated trade union, compelled the state to disclose the committee’s report.
Insights from the NPS Review Report
Contrary to expectations, the review committee did not recommend revoking the NPS. While finding no illegality, it highlighted the absence of legal barriers to termination. The report emphasised continuing the NPS to reduce pension outgo by 2040. It proposed raising the state’s contribution to 14 percent and aligning the dearness allowance accordingly. The committee also advocated death-cum-retirement gratuity for NPS participants.
Long-Term Vision or Immediate Relief?
The committee urged a long-term perspective on pensions, foreseeing a decrease in pension outgo as a share of total revenue by 2040. Rejecting NPS termination, it warned of a persistently high pension share if revoked. By 2060, other states with NPS would cap pension outgo at 14 percent, while Kerala would exceed 20 percent.
The Battle of Perspectives
Retirees under NPS complain of meagre annuities, citing the volatility of investment assets in a market downturn. Calls for a 14 percent government contribution, death-cum-retirement guarantees, and ex-gratia pension resonate among employee associations. Five states have already reverted to statutory pension schemes, reigniting demands for Kerala to follow suit.
In the intricate web of Kerala’s pension saga, the stakes are high. The report, a beacon of clarity, ignites the debate between the promise of future fiscal prudence and the immediate relief sought by those navigating the complexities of the contributory pension system.
Vakilsearch experts emphasise the need for legal clarity in Kerala’s pension landscape. The report opens avenues for legal scrutiny and strategic advice on navigating pension complexities.
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