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The backpedalling from the new pension scheme to the old pension scheme is being debated. Few state governments have even restored the old pension scheme in the recent past.

History of Pension 

The history of the Indian pension system dates back to the colonial era. It was the Royal Commission on Civil Establishments, in 1881, that first awarded pension to government employees. The Government of India Acts of 1919 and 1935 followed it and made further provisions related to pension in it. It is well documented that initially pension was introduced as a reward for loyal service. The system of pensions that prevailed in the pre-independence period continued even after independence. The central as well as state governments continued the pension system with certain terms and conditions in free India.

In 1979, the Government of India introduced a series of measures in the pension policy including the altering of formula for the calculation of pension against inflationary pressures. However, the government restricted the benefits of this measure only to those who retired after April 1, 1979. Against this order a Writ Petition in the Supreme Court was filed in 1980. While hearing the case, Hon’ble Justice Yashavantrao Chandrachud, the then Chief Justice of the Supreme Court held on December 17, 1982 that ‘Pension is neither a gift nor a reward or bounty’. Pension is the right of a retired government servant who has served the nation for a long time. It was further elaborated that the government is bound to ensure that its employees lead a peaceful and honourable life after retirement. This judgment conferred pensioners the Right of Pension including Dearness Relief. Henceforth, every year December 17th is observed as ‘Pensioners’ Day’ throughout the nation. 

The government was directed to apply the revised formula of calculation of pension to all pensioners, irrespective of the date of retirement. The government filed a review petition against the decision of the Constitution Bench that ultimately got rejected. Hence, the decision became effective for Union as well as the state government employees. On the whole, the judgment led to the emergence of three facts: (i) that pension is neither a bounty nor a matter of grace depending upon the sweet will of the employer and that it creates a vested right (ii) that the pension is not an ex-gratia payment but it is a payment for the past service rendered and (iii) that it is a social welfare measure rendering socio-economic justice to those who in the prime of their lives ceaselessly toiled for the employer on an assurance that in their old age they would not be left in lurch.

Despite the landmark decision of the apex court, the successive governments remained hell bent to reduce or to altogether abolish the system of granting pensions. In this context, the Union government approved on August 23, 2003 the proposal to implement the budget announcement of 2003-04 relating to the introduction of a new pension scheme popularly known as National Pension Scheme for new entrants to Union Government service, except Armed Forces. This scheme aimed at replacing the existing system of defined benefit of the pension system. The system was implemented for all new entrants to the Union government service from January 1, 2004. 

According to the new pension scheme, the monthly contribution of employees is 10% of the salary and DA paid, whereas contributions by the governments stand at 14%. Also, the National Pension System (NPS) Trust which is a specialised division of Pension Fund Regulatory and Development Authority got established. NPS is limited to the extent of 60% whereas the rest 40% goes for the purchase of annuities compulsorily, which is not free from speculation. However, this system has not gelled well with the government employees. Some of the state governments like Rajasthan and Chhattisgarh have restored the old pension scheme and issued notifications. The new Congress government in Himachal Pradesh (as promised during the recently held elections) decided to restore the old pension scheme as well. The Punjab government too issued a notification in the same direction.

When the Notification to introduce the new pension scheme was issued, the defence forces were kept out of it. It is pertinent to mention here that when the government announced its Agnipath scheme - a four-year contractual employment for the youth in defence services - the government denied any pension to them.

New pension scheme versus old pension scheme 

Where the old pension scheme guaranteed inflation and pay commission-indexed pension pay outs without any contribution from the employees, the new pension scheme is built on employee and employer contribution and the market-based returns. Hence the old pension scheme is much more generous vis-à-vis the new pension scheme. Government employees form a minuscule but vocal section of the population. However, they have the power to influence an electoral campaign. Pension reforms tried primarily by the NDA and the UPA governments during their reign have come under stress today. But it’s equally important not to let politics come in the way of prudent fiscal policy in light of the social responsibility of the state as well as the Apex Court’s detailed decision. On the whole, where the old pension scheme was aimed at the welfare of the employees, the new pension scheme being market linked stands a chance to deprive employees of their justified sum. Bearing in mind that pension is a socio-economic justice measure that aims at providing relief to the employees, the new pension scheme irrevocably impairs the capacity of employees to keep standing on their own feet after superannuation.