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Journalism of Courage
The data’s missing and the hole is growing. These were the key findings of the last two valuations of the Employees’ Pension Scheme 1995, as reported by The Indian Express on Monday. The actuary, who conducted the valuations, has also recommended steps to resolve these problems.
Though the 2002-03 valuation report notes that ‘‘We understand that steps have been taken to improve both quality and quantity of the data,’’ the 2003-04 valuation shows there’s a slippage in complete pension scheme member details from 15.1 per cent to 12.76 per cent.
On curbing the deficit in the scheme, which now amounts to more than Rs 22,000 crore, the valuer has suggested a few steps to the EPFO. (IE’s comments are in brackets).
• Contribution rate of 8.33 per cent should be increased to 10.33 per cent or benefits reduced. (Such a move would hurt employee interests and can’t be retrospective).
• If contribution and payout rates can’t be changed, increase the retirement age from 58 to 60. (This would mean that private sector employees who retire at 58 will be pensionless for two years).
• A team of actuaries should investigate the past experience of the scheme in terms of mortality and withdrawals.
• Withdrawals need to be controlled. The experience of the scheme shows large withdrawals, thus defeating the social security objectives. Large number of members leave one job, close an account, then re-enter with a new job.
• Future changes in scheme should be first checked by an actuary. When the wage ceiling for the scheme was increased from Rs 5,000 to Rs 6,500 in June 2001, the scheme’s liabilities increased by Rs 10,000 crore. (Another such increase in the ceiling is imminent, with the Employees’ State Insurance Corporation recently increasing its wage ceiling from Rs 6,500 to Rs 7,500).
• The Fund should follow an active investment policy so that the highest possible return is available on investments. The government is planning the approval of fund managers under the PFRDA. The flexibility in investment pattern that may be allowed to them, should be extended to the fund managers of EPS 95.
• SBI, EPFO’s banker and fund manager, has been assessing the effectiveness of operations by internal audit. There is a need for greater involvement of the PF authorities.
• For each year of early retirement (less than 58), a 3 per cent deduction is made in pension benefits, with a limit of 25 per cent deduction. This deduction should be increased to 5 per cent per year with a maximum of 50 per cent deduction.
• Immediate steps should be taken to set up an Actuarial Department inside the EPFO, which can be responsible for taking care of the quality and quantity of the data.
• Exempted establishments, which were running their PF trusts inhouse, had taken the EPFO to court over the EPS 1995 scheme. Recently, the Supreme Court ruled in favour of EPFO. Thus, all the exempt funds that have so far not been covered under EPS 1995, now come under the scheme. Urgent steps should be taken by the EPFO to bring in their unpaid contributions of the past 10 years.
• Though some unclaimed deposits would be eligible for the pension, they were not considered for the valuation due to lack of data. The proper data on Unclaimed Deposits should be collected and reflected.
However, according to other independent actuaries, no amount of changes to the scheme design can save it now. ‘‘The EPS 1995 is a very badly drafted and poorly-designed scheme. Cross subsidies abound and there’s little link between contributions and benefits,’’ said an actuary.
In fact, the higher the contributions made and the longer the period of employees’ contribution, the lower the benefit one gets. ‘‘The best and only solution to this scheme is to scrap it and return members’ accumulations to their providend fund accounts,’’ averred another.
