India is ranked 45th in the Pension Grade System of 47 countries. The USA ranked 22nd is a capitalist country but 100% of its population is covered under a pension system. In most countries the employer, whether government or corporate, has to provide a pension to their employees. In India, pensions are being called a fiscal burden!
In a path-breaking judgement delivered on 17 December 1982, the Supreme Court five-member bench with Justices Y V Chandrachud (CJI), D A Desai, V D Tulzapurkar, O. Chinnappa Reddy and Baharul Islam, made significant observations. The Supreme Court Judgement is equal to law they say. Let’s look at some of the important observations from this judgement.
The rationale for pension is explained:
“In the course of transformation of society from feudal to welfare and as socialistic thinking acquired respectability, State obligation to provide security in old age, an escape from undeserved want was recognised and as a first step, pension was treated not only as a reward for past service but with a view to helping the employee to avoid destitution in old age. The quid pro quo, was that when the employee was physically and mentally alert he rendered unto master the best, expecting him to look after him in the fall of life. A retirement system therefore exists solely for the purpose of providing benefits”
Goals of Pension described:
“Let us therefore examine what are the goals that pension scheme seeks to subserve? A pension scheme consistent with available resources must provide that the pensioner would be able to live: (i) free from want, with decency, independence and self-respect, and (ii) at a standard equivalent at the pre-retirement level. This approach may merit the criticism that if a developing country like India cannot provide an employee while rendering service a living wage, how can one be assured of it in retirement? This can be aptly illustrated by a small illustration. A man with a broken arm asked his doctor whether he will be able to play the piano after the cast is removed. When assured that he will, the patient replied, ‘that is funny, I could not before’. It appears that determining the minimum amount required for living decently is difficult, selecting the percentage representing the proper ratio between earnings and the retirement income is harder. But it is imperative to note that as self- sufficiency declines the need for his attendance or institutional care grows. Many are literally surviving now than in the past. We owe it to them and ourselves that they live, not merely exist. The philosophy prevailing in a given society at various stages of its development profoundly influences its social objectives. These objectives are in turn a determinant of a social policy. The law is one of the chief instruments whereby the social policies are implemented and ‘pension is paid according to rules which can be said to provide social security law by which it is meant those legal mechanisms primarily concerned to ensure the provision for the individual of a cash income adequate, when taken along with the benefits in kind provided by other social services (such as free medical aid) to ensure for him a culturally acceptable minimum standard of living when the normal means of doing so failed’. (See Social Security law by Prof. Harry Calvert, p. 1)”
Pension is not only compensation but also a measure of socio-economic justice
Summing-up it can be said with confidence that pension is not only compensation for loyal service rendered in the past, but pension also has a broader significance, in that it is a measure of socio-economic justice which inheres economic security in the fall of life when physical and mental prowess is ebbing corresponding to aging process and therefore, one is required to fall back on savings. One such saving in kind is when you gave your best in the hey-day of life to your employer, in days of invalidity, economic security by way of periodical payment is assured. The term has been judicially defined as a stated allowance or stipend made in consideration of past service or a surrender of rights or emoluments to one retired from service. Thus the pension payable to a Government employee is earned by rendering long and efficient service and therefore can be said to be a deferred portion of the compensation or for service rendered. In one sentence one can say that the most practical raison d’etre for pension is the inability to provide for oneself due to old age. One may live and avoid unemployment but not senility and penury if there is nothing to fall back upon
Pension is not a bounty
From the discussion three things emerge: (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 subject to 1972 rules which are statutory in character because they are enacted in exercise of powers conferred by the proviso to Art. 309 and clause (5) of Art. 148 of the Constitution; (ii) that the pension is not an ex-gratia payment but it is a payment for the past service rendered; and (iii) it is a social welfare measure rendering socio-economic justice to those who in the hey-day of their life ceaselessly toiled for the employer on an assurance that in their old age, they would not be left in a lurch. It must also be noticed that the quantum of pension is a certain percentage correlated to the average emoluments drawn during the last three years of service reduced to ten months under a liberalised pension scheme.
What is a Socialist Republic?
What does a Socialist Republic imply? Socialism is a much-misunderstood word. Values determine contemporary socialism pure and simple. But it is not necessary at this stage to go into all its ramifications. The principal aim of a socialist State is to eliminate inequality in income and status and standards of life. The basic framework of socialism is to provide a decent standard of life to the working people and especially provide security from cradle to grave. This amongst others on economic side envisaged economic equality and equitable distribution of income. This is a blend of Marxism and Gandhism leaning heavily towards Gandhian socialism. During the formative years, socialism aims at providing all opportunities for pursuing the educational activity. For want of wherewithal or financial equipment the opportunity to be fully educated shall not be denied. Ordinarily, therefore, a socialist State provides for free education from primary to Ph. D. but the pursuit must be by those who have the necessary intelligence quotient and not as in our society where a brainy young man coming from a poor family will not be able to prosecute the education for want of wherewithal while the ill-equipped son or daughter of a well-to-do father will enter the portals of higher education and contribute to national wastage. After the education is completed, socialism aims at equality in pursuit of excellence in the chosen avocation without let or hindrance of caste, colour, sex or religion and with full opportunity to reach the top not thwarted by any considerations of status, social or otherwise. But even here the less equipped person shall be assured a decent minimum standard of life and exploitation in any form shall be eschewed. There will be equitable distribution of national cake and the worst off shall be treated in such a manner as to push them up the ladder. Then comes the old age in the life of everyone, be he a monarch or a Mahatma, a worker or a pariah. The old age overtakes each one, death being the fulfilment of life providing freedom from bondage. But there socialism aims at providing an economic security to those who have rendered unto society what they were capable of doing when they were fully equipped with their mental and physical prowess. In the fall of life, the State shall ensure to the citizens a reasonably decent standard of life, medical aid, freedom from want, freedom from fear and enjoyable leisure, relieving the boredom and the humility of dependence in old age. This is what Art. 41 aims when it enjoins the State to secure public assistance in old age, sickness and disablement. It was such a socialist State that the Preamble directs the centres of power Legislative Executive and Judiciary-to strive to set up. From a wholly feudal exploited slave society to a vibrant, throbbing socialist welfare society is a long march but during this journey to the fulfilment of goal every State action whenever taken must be directed, and must be so interpreted, as to take the society one step towards the goal.
Here it is beautifully explained why education should be provided by the state. Equal opportunity of employment should be provided to all and there is clearly a need for a pension system for all workers.
Welfare State
Having clearly set out the society which we propose to set up, the direction in which the State action must move, the welfare State which we propose to build up, the constitutional goal of setting up a socialist State and the assurance in the Directive Principles of State Policy especially of security in old age at least to those who have rendered useful service during their active years, it is indisputable, nor was it questioned, that pension as a retirement benefit is in consonance with and furtherance of the goals of the Constitution. The goals for which pension is paid themselves give a fillip and push to the policy of setting up a welfare State because by pension the socialist goal of security of cradle to grave is assured at least when it is mostly needed and least available, namely, in the fall of life.
These principles are applied by most countries whether socialist or capitalist.
The quality of pension systems available to workers varies greatly across the globe. The Netherlands has the best system, while the U.S. isn’t even close to the top, according to the latest Mercer CFA Institute Global Pension Index.
The following chart shows the 47 pension systems included in the index and how their pension systems scored and ranked in 2023:
India is ranked 45th among 47 countries. The USA ranked 22nd is a capitalist country but 100% of its population is covered under a Pension system. In most countries the employer whether public or private has to provide a pension. Apart from this, the Governments have pension schemes under social security.
How Much Can I Get in Social Security Benefits in the USA?
The amount of your Social Security retirement benefit depends on your average indexed monthly earnings (AIME) during your 35 highest-earning years. Amounts will differ significantly among retirees. The average monthly retirement benefit was $1,869.77 as of June 2024.
Your annual amount increases by 8% for each year that you delay collecting benefits if your retirement age is 66 to 67. This starts with the year after you reach your full retirement age and it stops at age 70. Those who begin taking Social Security when they reach the FRA of 66 would receive 100% of their primary insurance amount (PIA). They’d receive 108% of their PIA if they delayed taking benefits until the following year. They would receive 132% by delaying until age 70.
The benefit varies depending upon when you begin taking it. The maximum monthly benefit for people aged 62 is $2,710 ($32,350 annually) in 2024. It’s $4,873 ($58,476 annually) for those who have reached age 70.
A cost-of-living adjustment is made to Social Security benefits annually to keep pace with inflation. It was 8.7% for 2023 and it’s 3.2% for 2024.
Workers can get a projection of their benefits at different retirement ages by using a calculator that’s provided on the Social Security Administration website.
Social Security provides a special minimum benefit for long-term low earners that was first enacted in 1972. You must have income for at least 11 years to qualify. The special monthly minimum benefit was $50.90 ($610.80 annually) for December 2023. It increases for each additional year of low-income work, topping out at $1,066.50 or $12,798 annually for people who have worked for 30 years. (Rs.89412.86 per month/Rs.1073961.45 per annum)
Those who are unemployed get an unemployment allowance equivalent to minimum wage. There are 4% people who can’t contribute. Their contribution is paid by the Government.
People who can’t work due to a physical or mental disability that’s expected to last for a year or more or result in death may be eligible for Social Security disability benefits (SSDI). You generally have to meet certain earnings tests to qualify. Family members of disabled workers can also be eligible.
How Much Can I Get in Disability Benefits?
About 8.3 million Americans were collecting SSDI benefits as of June 2024. The average monthly benefit was $1,398.08 ($16,776.96 annually). The monthly average for disabled workers was $1,537.70 ($18,452.40 annually). Spouses of disabled workers received an average of $420.74 monthly ($5,048.88 annually) and children of disabled workers received $493.19 monthly ($5,918.28 annually).
Who Can Get Survivor Benefits?
The spouse and children of a deceased worker may be eligible for survivor benefits.
Now you can understand why people want to go to these countries and settle there!
In our country, we had a pension scheme now called the Old Pension Scheme, for Government employees. The Vajpayee Government introduced a New Pension System, from 1.1.2004, which the employees called ‘No Pension Scheme’ as there was no assured pension. This was extended to Banks and Public Sector Undertakings in different years. Basically the Govt was giving up the responsibility of giving a pension and the employees had to contribute 10% of their pay for the scheme while the Govt/ PSB/PSUs would pay 10% with the inclusion of DA. The amount will be invested in the market and no one knows what will be the return. Though the Govt increased its contribution to 14% the employees want OPS under which you get 50% of the last drawn pay with DA. Under OPS, periodic updation takes place as and when the Pay/Wage revision happens. Provident fund @8.33% is contributed by the employer as well as the employee and on retirement one gets a lump sum and gratuity paid by the employer while one retires. The maximum now is Rs.25 lakhs.
Now the Government has introduced a Unified Pension Scheme which is worse than NPS if we analyse it thoroughly.
A comparative statement is given below which is applicable to Central Govt employees:
| Feature | UPS | NPS | OPS |
| Pension Type | Defined Contribution and defined benefit | Defined Contribution and Benefit not defined | Defined Benefit |
| Employee Contribution | 10% of Pay + DA | 10%of Pay + DA | Nil |
| Employer Contribution | 18.5% of Pay +DA | 14% of Pay + DA | In place of employer’s contribution, pension is given |
| Pension | Assured 50% of Last drawn Pay after completing a minimum 10 years of service | Meagre returns from Annuity of 40% of pension wealth and it is not assured | In place of employer’s contribution, a pension is given |
| Commutation | Not available | Not available | Maximum upto 40% of Pension can be commuted and Lump sum is given during retirement itself |
| Gratuity | Available | Available | Available |
| Lump sum during retirement | 1/10th of salary ( pay + DA) for every six months of service (5 month Pay+DA for 25 years of service, 2 months for 10 years) | 60% of Pension wealth on superannuation/ 20% on VR | 100% of PF (Provident Fund) accumulated amount with Interest. |
| Minimum Pension assured | 10000 per month + DA after minimum 10 years of service | Not assured | 50% of Last drawn pay subject to minimum of 9000 at present+ DA( as on 01.04.25, 9000+5130= 14130) |
| Family Pension | 60% of eligible pension. In case of minimum pension ₹.6000 only will be family pension. Minimum assured pension of ₹.10000 is not applicable to Family Pension | Subject to returns from annuity only. But no assured Family Pension | Assured 50% of last 12 months’ average after completing 25 years of service. Proportional for lesser service (40% for 20 years & 20% for 10 years)Government takeover of 100% of amount in the pension account. After 25 years of service, in case of withdrawal of 60% from the pension account, Pension will be reduced by 60% and only 40% of 50% that is 20% pension will be eligible. It will further be reduced for lesser service. For 20-year service, pension will be 16% of eligible pension. For 10 years of service 8% of eligible pension. Most will be eligible for Rs 10000 only |
| Inflation Indexation | Available. Whether it will start from 0% or the same applicable for Central Govt Employees will be known after notification only. | Not available | Available. Applicable as the same for Central Govt Employees |
| Voluntary retirement | In OPS family pension is 50% of the last pay if the pensioner dies before 7 years after retirement or before 67 years of age. Thereafter family pension will be 30% of last pay | 60% of Pension Wealth will be given on hand and the remaining invest in annuity | 50% of last drawn pay after completing 20 year service as Pension+ DA thereon |
| Provident Fund | 100% of individual pension account is taken for annuity. But after the demise of both investment is not returned but taken by the government. | No Provident Fund 60% of pension wealth will be returned on superannuation and 40% of wealth invested in Annuity | Provident Fund available 8.33% of basic pay is recovered and the entire amount with accrued interest is returned during retirement |
| Condition of Pension Wealth after demise of employees and spouse | 100% of individual pension account is taken for annuity. But after the demise of both investment, it is not returned but taken by the government. | After the demise of pensioner and spouse, eligible dependent like unmarried/widow daughter etc can get family pension continuously. | After the demise of pensioner and spouse, eligible dependent like unmarried/widow daughters etc can get family pension continuously. |
In UPS individual pension account means 10% of employee contribution and 10% of government contribution only. The remaining 8.5% of Govt contribution out of 18.5% belongs to the reserve fund of Govt. (For the above calculations, I thank Com. R. Elangovan, DREUPA)
Hence majority of the unions are opposing UPS and demanding OPS.
Along with that, we require a Universal Pension Scheme for all which can be a combination of Govt contribution and employee contribution.
Let us follow the goals of the Constitution. Provide social security to all and bring down inequality as envisaged instead of creating dollar billionaires who have one leg in the country and one abroad. Let the D S Nakara judgement be the guiding principle.
Thomas Franco is the former General Secretary of the All India Bank Officers’ Confederation and a Steering Committee Member at the Global Labour University.
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