Pension liability pegged at Rs 17 lakh crore

503,992 central govt employees likely to retire in 2006

The present value of the government's pension liability for central employees and state employees is estimated at Rs 17,35,527 crore, a study released by the Invest India Economic Foundation and the Centre for Monitoring Indian Economy, today said.

That is 55.88 per cent of the country's gross domestic product, and it does not include the liability on account of one million working defence employees and two million receiving pension and central civil pensioners, state level pensioners and the funding gap (estimated at about Rs 22,000 crore) in the Employees Pension Scheme (EPS).

The Left has been against shifting to a defined contribution scheme like the New Pension Scheme (NPS), which does not offer guaranteed returns, on the grounds that the outgo is not much.

Officials, however, said the government could ill-afford to ignore the large funding gap on account of non-recognition of the pension bills and that the consequences of guaranteed returns were well above what the markets could offer.

The problem gets accentuated as the government does not recognise this huge bill as pension liability.

The paper assumes that 503,992 central (civil) employees, with a median wage of Rs 84,000 in 2004, will retire in 2006. This will result in an annual pension of Rs 45,427 per person.

For easier understanding, if the government was to use LIC's scheme price of this pension of Rs 6,49,888, it would pay Rs 32,754 crore in 2006. For state governments, it is estimated that 13,40,895 employees will retire in 2006. A median wage in 2004 of Rs84,000 means an annual pension of Rs 45,427 per employee annually.

The government will have to pay Rs 87,143 crore in 2006 based on the LIC price.

The net present value of the Centre's implicit pension debt for its civil employees comes to Rs 406,092 crore with an employee strength of 5.28 million.

Similarly, for the states, the IPD for 18.44 million employees is estimated at Rs 13,29,435 crore.

The paper estimates the IPD for government employees using the indian retirement earnings & savings (IRES) database.

The amounts are computed on a nominal basis at 2004 prices.

The working group on assessment of Pension liability of the government estimated in 2001, that the central pension would rise to Rs 29,891 crore in 2009-10.