Editorial 1: End logjam for EPFO pensioners 

Context

The Centre and the EPFO should be guided by a problem-solving approach.

Introduction

A recent official announcement about the successful pilot run of the new Centralised Pension Payments System (CPPS) under the Employees’ Pension Scheme, 1995, comes at a time when lakhs of members of the Employees’ Provident Fund Organisation (EPFO) and pensioners have been waiting to hear about their applications for pension on higher wages.

Some questions remain: The Launch of the CPPS

• The launch of the CPPS is undoubtedly a relief to new pensioners.
• They will not be required to open an account in specified banks just to receive their monthly entitlement.
• Under the new system that will come into force from January 1 across the country, pensioners can collect their pension from any bank branch in India.
• Also, they are no longer required to go to the bank for verification at the time of commencement of pension.

Concerns with the EPFO and Ministry of Labour

• However, the Union Ministry of Labour and Employment and the EPFO have been silent on more substantive matters.
• These include processing applications for pension on higher wages quickly, increasing the minimum pension amount of ₹1,000 and the wage ceiling of ₹15,000 under the EPF, and restoring the universal applicability of EPS to all PF members, regardless of their pay.
• Both the minimum pension and the current wage ceiling came into effect on September 1, 2014.
• There have been demands from employees’ representatives and trade unions for revising the minimum pension to ₹9,000 and the wage ceiling to ₹40,000.

Progress on Pension on Higher Wages

• Even two years after the Supreme Court approved the principle of payment of pension on higher wages (on wages that exceeded the PF ceiling), the progress made in processing the applications has been slow.
• About 1.3 million net applications were pending with the authorities for clearance as on August 7, according to an EPFO reply given under the Right to Information Act.
• The authorities had issued pension payment orders to about 8,400 applicants, approving the payment of pension on higher wages.
• They also issued demand notices to about 89,000 persons, which required them to transfer their share of the difference.
• This was because the pensionable salary of the applicants was higher than the wage ceiling and the contributions by their employers to the Pension Fund would have been limited only to the extent of the wage ceiling.

Issues with Higher Pension Calculation

• Amid modest progress, there are issues including the calculation of higher pension following a pro-rata basis and the imposition of next-to-impossible conditions for pre-September 2014 retirees to be considered for higher pension.
• Documentation and Trust Issues: The EPFO expects applicants and their employers to submit very old documents — for example, pay slips issued to employees 25 years ago — which are not available in many cases
  • Invariably, the applicants, whether they are in service or not, are aware that they will have to give their consent for transfer of a certain portion of their savings to the EPFO before they start receiving their enhanced pension.
  • This needs to be done because the employers’ contribution to the pension corpus for their employees has been limited by the wage ceiling.
  • The PF body should trust in the undertaking of the employers regarding their former and present employees.

No cash flow problems: Traditional Position on the Pension Fund

• The traditional position of the establishment: reinforced by the 2019 valuation of the pension fund, has been that the fund, a pooled one with the provision for withdrawal benefits or pension, depending on the eligibility of members, is in deficit.
• The EPFO: is said to be carrying out actuarial valuations for every batch of 50,000 demand letters issued.
• An evaluation of sample data: of 38,000 applicants showed a deficit of around ₹9,500 crore (about ₹25 lakh per person).
• According to the establishment: such a situation will eventually erode the sustainability of the pension fund and jeopardise social security coverage of lower pension earners.

EPFO’s Annual Report Insights

• The EPFO’s annual report for 2022-23 pointed out that the fund had not witnessed any cash flow problems in the last five years.
• Despite the pandemic, there was a steady rise in annual contributions to the fund and the corpus, which is made up of contributions by employers at 8.33% of wages and from the Centre through budgetary support at 1.16% of wages up to ₹15,000 per month.
• In the three years ending March 2023, the increase in annual contributions was about ₹13,000 crore, and the corpus rose by nearly ₹2.5 lakh crore.

Growth in Contributions and Membership

• The draft annual report for 2023-24, discussed by the Executive Committee of the EPFO’s Central Board on November 8, also referred to the growth in the number of contributing establishments and members in the range of 6.6%-7.6%.

Conclusion

It is time that the Union government and the EPFO looked beyond actuarial deficit. They could consider recommendations by experts that the government could set apart, as a one-time measure, a hefty amount to reinforce the sustainability of the Pension Fund or increase the existing quantum (12%) of contributions by employers and employees to the PF. In case the government and the EPFO believe that there are genuine difficulties in providing higher pension to all the eligible applicants in the next six months or so, they should explain their position publicly and convey what is feasible. Importantly, the Centre and the EPFO should be guided by a problem-solving approach.

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Editorial 2: A sign of policy paralysis in Maharashtra

Context

Bank transfers before elections are nothing but the distribution of cash for votes.

Introduction

The elections season in Maharashtra is at a crossroads where the reformist agenda of electoral politics has been taken over by monetary manipulations through the state apparatus. Though monetary considerations for votes are not new in politics, they were not structurally embedded in the state policy. Distribution of cash was a purely political phenomenon. The freebie culture routed through the state has diluted the policy process.

• Caste Issues in electoral politics: In earlier decades, caste issues predominantly dominated electoral politics.
  • Certain political parties criticised reservations — a policy of affirmative action — as a freebie.
• Distribution of freebies as political strategy: Distribution of freebies was considered an important strategy for underdeveloped states in the country.
  • Items like colour TV sets, laptops, mixers, etc. were distributed in exchange for voter allegiance.
• Maharashtra’s pioneering initiatives: Maharashtra pioneered the Employment Guarantee Scheme in 1972, offering wages for work.
  • This scheme was later adopted by the Central government as the Mahatma Gandhi National Rural Employment Guarantee Scheme.

Cash for votes?

• Change in political and economic strategy: However, since then, there has been a change, which is a sign of limited understanding of economic issues and is usually observed in a state of policy paralysis.
  • This change could be attributed to the inability of rational policy design by the political class.
• The Majhi Ladki Bahin Yojana: In the backdrop of the Assembly elections in Maharashtra, the ruling Mahayuti coalition announced the Majhi Ladki Bahin Yojana.
  • Women who are residents of Maharashtra, aged 21 to 65 years, and have an annual family income of less than ₹2.5 lakh are eligible for this scheme.
  • The Opposition, Maha Vikas Aghadi, could not counter it, so they announced a similar scheme in their manifesto.
• Bank transfers and electoral strategies: If politicians are unable to generate employment, it is essentially a matter of economic policy.
  • Bank transfers before elections are nothing but the distribution of cash for votes. This is not a policy solution to the problems of unemployment and poverty, nor is it compensation.
• Shift in constituency building: Traditionally, politicians would build a constituency by continuously engaging with the people.
  • Most issues, including civic issues, were resolved with the intervention of people’s representatives.
  • This is no longer the case.
  • Today, larger constituencies are built using social media and post-truth narratives.
• Modern constituencies and the role of women voters: In modern-day politics, a constituency is not confined to a geographical space with a proportional population; it is a demographic imagination of an entire subset of a population, such as the youth or women.
  • While earlier studies show that women were the last to be considered as independent potential voters and it was assumed that most women would vote according to the choice of the family (essentially the male head of the family), this is not the case any longer.
  • Women are important voters and are being wooed everywhere.
• Short lived imagined constituencies: However, these imagined constituencies will be short-lived in the absence of solid rational policies.

Demographic imagination

• Role of Political Parties in Changing Socio-Economic Conditions: Under the changing socio-economic conditions, political parties function as agencies for the ‘consolidation of demographies’ across the population.
• Demographic Imagination: ‘Demographic imagination’ means a process of negotiation with potential groups who could vote for a political party.
  • It is a highly complex process that could include changing voters’ preferences and orientations.
  • This is a long-term process to build a clientele base of a political party.
• Consolidation of Demographies: ‘Consolidation of demographies’ is different from ‘demographic imagination’.
  • It refers to the manifestation of demographic imagination through interventions such as direct cash transfers or other freebies.

Conclusion

Though the liberal economic thought process may seem to be at work in politics, a day may not be too far when voters will experience progressive deprivation and demand a solid policy aimed at improving their condition. While the youth is known to be more demanding, women too will begin demanding employment rather than accepting a ₹1,500-3000 per month. Gig-politicians then will have to abandon these short-term measures and focus on building their constituencies the good old way.