Pension Mess

Pension has been one of the reason why Government Jobs were always preferred till a few years back. Pension payment most times were a lifeline for middle class families, especially in the seventies and eighties of the last century. To put it in perspective would take the example of my maternal Grand Father. A maverick working in the Income Tax Department he took voluntary retirement around 1952 when in his early fifties. I would assume he had  worked for the Indian Government for around 25 – 28 years. He drew pension for another 22 years before he died. Those days there was no family pension for Central Government employees. Was later introduced and my Grand Mother was able to get pension from 1980 to 2002 when she died. So after my Gran father worked for may be 28 years, they drew pension for another 44 years. Have a few relatives where the husband died in his 30’s and the wife drew pension for the next 55 – 60 years. Those are at least justified on Compassionate grounds.  

When I tweeted about the mess on pension (Complete set of Tweets can be read here. Good friend @surenc1974 wrote a blog on the rules of PF here.  My purpose of writing this post is completely different. 

There are two kinds of pension now. The Non Contributory (Up to 2004) and the Contributory (From 2005). Both schemes have their problem. Will limit this post to the earlier scheme. During those days the Government, be it Central or State never used to worry about the Pension Liability. This method was called “Pay as You Go”. No one cared about the pension overhang. The last drawn salary decided what would be the pension. My Grand Father was a Senior Man, an ITO. By today’s standard it might be very low but in late forties and early fifties he was a big man. So big that MKT (a leading film star of those days) visited him and not the other way round. But his salary in 1952 would be one-tenth of that of the lowest salary in the eighties. So my Grand Mother got the lowest possible amount as pension. But with each succeeding pay Commission this amount grew bigger. By 2001 she was drawing Rs. 2000+.

As years went by and the Government became bigger and bigger, poeple woke up to the fact that pensions could drown out the government. Take the case of Kerala – there are more pensioners than current Government employees. Kerala Government is the biggest employer in that part of the country.

Currently Kerala Government spends 90% of its expenditure on revenue expenses. Of this 90%, pension payments consume 22.9%. The comparable figure for Gujarat is 9.76%. Salaries eat up another 42.7% in kerala while it is 9.87% in Gujarat. As time goes by, even if the Government employment is reined in, pension is going to grow. A person who joined service in 2004, at say 25 years of age, will work for another 35 years, till he is 60. he will retire in 2039. If he lives for another 20 years and his wife survives him by a mere 5 years, the pension will be drawn till the year 2064.

Nobody, NO BODY knows how much the Governments, Central and State will have to pay.  It will come out of the Annual Budget.



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