The annual addition to the pension kitty under the new pension system (NPS) will go up by Rs 3,000 crore if the Sixth Pay Commission?s recommendations to raise salaries by 20-40% are accepted.
The current corpus of the NPS is Rs 5,000 crore. Until now, the NPS corpus has been swelling by about Rs 1,000 crore a year.
Though with the increase in salaries, the government would be under pressure to pass the Pension Fund Regulatory Development Authority (PFDRA) Bill in Parliament, political sources feel it may take time to iron out differences with the Left parties on the issue. Notably, finance minister P Chidambaram made no mention of the issue in his latest Budget announcement.
Currently, about six lakh people are covered under the NPS, which is a defined contribution scheme against the existing defined benefit system?a non-funded liability for the government. The current outgo on pension is about Rs 65,000 crore and may double in the next five years with the imminent wage revision.
A Ficci-KPMG study has pointed out that the reform of the pension system would enlarge the market size to Rs 4,06,400 crore by 2025 from Rs 56,100 crore in 2002. The overall economic gains, the study said, would be substantial as the mobilisation of pension assets would lead to effective investments in the stock, bond and mortgage markets, thereby supplying the capital to finance corporate growth, government infrastructure. According to the study the new system can only succeed if there is a strong and efficient regulator.
The total pension outgo as a percentage of net tax revenue has increased from 7.6% in 1990-91 to 10.56% in 2005-06. The compound annual growth rate of the pension outgo of the Centre was 17% during the period.