Meet on state pension plan

The finance ministry has called a meeting with state finance secretaries on February 26 to work out the course for state governments to adopt a contributory pension scheme for their staff.

The meeting, which will also be attended by finance ministry officials, will be based on the BK Bhattacharya committee report on state governments' pension reforms.

State governments have the option to either accept the contributory pension plan developed by the Centre or set up a parallel infrastructure of their own. However, it is expected that over the next three-four years most of them will adopt the central government's pension plan.

The Pension Fund Regulatory and Development Authority (PFRDA) has already asked states to indicate the framework they want to adopt.

The meeting is also expected to discuss the impact of the central government's decision to merge the dearness allowance of its employees with their basic pay.

State governments are expected to follow suit, though they are under no constitutional obligation to do so. While the merger is expected to cost the Centre around Rs 3,500 crore, states may have to fork out over Rs 10,000 crore for the same.

This will also bloat their pension bills simultaneously. The Bhattacharya panel has recommended that the Centre should informally consult with states every time it hikes the dearness allowance, which finance ministry officials said was difficult to adhere to.

The Centre has mandated that from January 1 this year all new government employees will have to follow the new defined contribution pension scheme.

This means that they will not be paid pension from the Consolidated Fund of India and will instead earn the same from the investments made by their pension fund managers in the capital markets. The principal will comprise a matching contribution made by the employees and the government every month.