AP to launch new pension scheme

In a significant development, the state government on Wednesday decided to introduce the new Contributory Pension Scheme to all the new recruits on the lines of the Union government scheme with immediate effect.

The state government's move is apparently aimed at containing the expenditure on the pension front in the long run.

The expenditure on the pension and the gratuity front has been growing at an alarming rate in the state, making the government more and more reluctant to recruit employees even when it is required.

According to official figures, the liability towards the pension and gratuity which was only Rs 509.50 crore during 1993-94 had doubled to Rs 1,004.01 crore in 1996-97 which then doubled to about Rs 2,401.61 crore in 2000-01. The expenditure towards pension and gratuity for 2004-05 is estimated to be around Rs 3,070.78 crore.

According to a study conducted by the state government, this liability is expected to grow to Rs 5,766 crore in 2010 and Rs 20,190 crore by 2025.

The total expenditure on the government establishment, including pension as percentage of state's own revenues, was 61.02 per cent in 2003-04. It is estimated, slightly low, at 58.2 per cent for the current fiscal.

The immediate direct benefit would be availability of funds for governmental investments. Andhra Pradesh is the second state in the country after Tamil Nadu to introduce the new pension scheme to its employees which was brought in by the Centre.

According to the new pension scheme, each employee shall contribute, on a monthly basis, to the tune of 10 per cent of the salary and DA and equivalent amount would be contributed by the government. Hence, the General Provident Fund (GPF) deduction will not be available to the new recruits.

The state cabinet which met here on Wednesday approved the Contributory Pension scheme and it would be applicable mandatorily to all the new employees to be appointed on or after September 1, 2004.

The Contributory Pension Fund will be administered by the Pension Fund Regulatory and Development Authority (Perda) to be constituted by the Union government and the state governments are eligible for joining the proposed fund administration.

The fund envisages options for the new employees concerned, with regard to the investments of his accumulations for his maximum benefits.

"The move is aimed at long-term gain for the government. But it is a golden opportunity to the new recruitees as they will gain more from this new pension scheme which allows their money to be invested in equity at their will," T Radha, secretary of finance department, told Business Standard.

According to him, among all the other benefits, the nation would gain the most from the availability of enormous funds for investments on account of the Contributory Pension Fund.

At present, a government employee, after his retirement will get half of the last drawn salary up to the age of 85 years, and up to seven years to the spouse afterwards in case of his or her death. In case of early death, the spouse will get the full pension for 10 years and 30 per cent of the last drawn salary till her death.

The move assumes significance in the backdrop of the state government's immediate plans to recruit at least 30,000 employees. Among these, about 1,000 would be in Group 1 services and around 4,000 would be in Group 2 category. According to a survey, around 15,000 employees retire from the government services and around 3,000 pensioners die each year in the state.

Under the new scheme, 60 per cent of the accumulated amount would be paid to the employee on his retirement and the rest would be given in the form of monthly pension.

Employees will also have three options of investment "" majority fixed investments and a minor part in the equity; majority equity up to 90 per cent; and, the 50:50 balance option where the fixed investment and equity would be equal.

According to the government officials, most of the new recruitees are expected to opt for the third option.