In a draft report to the EPFO, actuarial firm KA Pandit said the net present value (NPV) of all future benefits or pension outgo at about Rs 3.23 lakh crore and the NPV of contributions at Rs 1.5 lakh crore, leaving a net liability of Rs 1.73 lakh crore.
Since the EPS has a corpus of Rs 1.62 lakh crore, the net deficit under the EPS as on March 2012 worked out to Rs 10,855 crore, said the draft report reviewed by FE.
The new valuation assumes future salary hike of 7% per annum, retirement age of 58 years and a maximum basic salary of Rs 6,500 or the current salary, whichever is applicable for the monthly pension.
The actuarial firm also assumed that the proportion of people who will draw pension to the total number of active EPFO subscribers will be 25%as against the present rate of 10%. EPFO's annual report for 2011-12 shows the number of pensioners were 41 lakh at the end of March 2012, whereas the total number of EPFO subscribers were 8.55 crore.
About half of EPFO subscribers are active who made PF contributions every month. Although EPS had a surplus of R1,689 crore in its first year launch during 1995-96, it started eroding its gains and by 2000-01, the scheme ended up with a deficit of R43 crore.
This deficit widened to R17,136 crore in 2001-02 to R22,659 crore in 2005-06 and then to R54,000 crore by 2009-10.
The rising deficit on EPS prompted the EPFO fora relook and seek World Bank's help for a realistic estimate of future liability.
EPFO officials point to discrepancies in the earlier valuations as it was based on a sample size of less than 5% of the subscribers. The lower deficit number for 2011-12 was arrived at after updation of data to factor in age profile, PF contributions and other parameters of 58% of the EPFO subscribers as against the earlier valuation carried out based on less than 5% of subscribers.
The EPFO now plans to update the profiles of 95% of its subscribers by March 2014 to help valuers rectify the NPVs of EPS assets and liabilities.
The rising deficit under the EPS and viability of the defined benefit pension scheme posed a major fiscal risk for the government.
Last year, the labour ministry sought an one-time bailout package of R14,000 crore for wiping out the losses of EPS. But the proposal was turned down by the finance ministry, which asked EPFO to wind up EPS and switch to the National Pension System (NPS).
The lower EPS deficit should come as a major relief to the government, which is trying to cut the fiscal deficit to 3% by 2016-17 from 4.7% of last year.
On its side, EPFO is considering raising the minimum mandated basic salary limit to R15,000 per month from the present R6,500 and raising the contribution for EPS by 0.66% to close to 9% to narrow the EPS deficit
Earlier, KA Pandit used the World Bank's PROST model to show EPS will not have a problem in funding its future liabilities until 2075, a view doubted by experts and trade unions.
The firm said EPS will have positive cash flow even if the wage ceiling for EPF coverage is raised to R7,000 per month in 2012 and raised by R500 every five years.