Pension tension

Planning for retirement is not easy. Its hard and frequently dispiriting,the calculation of exactly how much we need to save,year by year,in order to ensure weve got enough put by when the time comes. And its even harder for those in the unorganised sector,many of whom have access to no safety net whatsoever,or are easy prey for pyramid schemes and other hucksters. Which is why,if we are looking at new institutions here,we have to get them right.

As The Financial Express reported on Monday,the Centre is working on a new fixed-income pension plan,which will be available to the 400 million workers in the unorganised sector. Thats a big,big idea,and something that needs to be carefully planned because it is both necessary,and will be massively impactful down the line. But,as reported,the trouble is that this will be a defined benefit plan,in which workers are promised a particular amount regardless of how matters change over their lifetimes. That moves us away from a defined contribution plan,in which what you get is linked to what you put in,and how thats managed over time. Any difference between what you put in,what it earns over time,and what youve been promised will have to be made up by government money. This was precisely what the New Pension Scheme,which was supposed to be the big gamechanging and accessible idea for pension planning,would have avoided; but this new plan,being pushed in coordination with states like Haryana,Karnataka and Andhra Pradesh,both dilutes the NPSs attractiveness and drifts in the wrong direction.

It does that by ignoring the logic that drove the movement from a defined-benefit to a defined-contribution plan in the first place: simple fiscal prudence. At a recent conference in New Delhi,the Central provident fund commissioner

revealed that the Employees Pension Scheme of 1996,where the government has put about one-third of all provident fund money,was recently examined by experts: and that examination turned out a shocking deficit,of Rs 54,000 crore. Thats money that the government will have to make good at some point depriving other crucial social-sector schemes of life support.