Spot the pensioner

Apart from the fiscal unsustainability of the Employees Provident Fund Organisation (EPFO), which has grabbed increasing attention over the past few months, a serious issue that has not got much traction so far is that of the government pension system.

This has been growing at over 18 per cent annually since 1990-91, and crossed Rs 60,000 crore. That figure is daunting enough, but what is positively frightening is that the government does not have a fix on who these pensioners are.

A survey for the ministry of finance by AC Nielsen ORG MARG, reported by this newspaper yesterday, shows for instance that over 7 million people in the country report themselves to be employed by the central government.

This compares with the official estimate of around 4.5 million, including the armed forces. For the states, the survey’s estimates are 13.5 million, compared to the official figure of 7.5 million.

The difference is explained substantially by the presence of quasi-government employees, such as the lakhs of teachers whose salaries, and eventually pensions, get paid by the government indirectly through grants and other means.

If the survey results reveal the real picture, and they are for the most part affirmed by independent reports of the ministry of labour, then their message is that the galloping pension bill is a lot more serious than it already seemed.

Another study, by the advisor and deputy advisor of the Planning Commission’ s perspective planning division in 2003, showed up equally disturbing facts—that the government has no clue about the number of pensioners it has.

What Pronab Sen and Sibani Swain did was to take the employment estimates of various government departments and the number of retirees each year, and then apply the existing mortality rates to them.

Their findings were startling—that in the period since the fifth Pay Commission, the central government paid out around Rs 5,000 crore of extra pensions each year.

In other words (though the duo didn’t spell it out in this way), about a third of central pensions were being paid out to people who the mortality tables suggested were dead.

While the Nielsen survey and the Sen-Swain paper point to diametrically opposed problems (Nielsen shows the pensions are under-estimated while Sen-Swain say they’re over-stated), they both point to the same thing, that the government has no fix on the number of employees and pensioners it has.

It is not surprisingly, then, that in most years the actual pension payout has been significantly different from that budgeted at start of the year.

While the government pension system and the EPFO cover less than a fifth of those going to retire in the next 10 years (that is, those 44 million people in the 51-60 age group), an equally serious problem is that under 2 per cent of those without this cover can afford to support themselves after they retire.

Indeed, if you exclude those covered by government pension schemes, the proportion of those who can support themselves even if they reduce their current expenses by half once they retire, is abysmally small.

Not fixing a system that is clearly not working and replacing it with a modern pension system, should be an urgent task.