Maharashtra, AP fight pension woes

MUMBAI: Rattled by dismal finances, some states are taking a close look at their pension liabilities, even as the Centre continues to drag its feet on what could well be a time bomb.
For the first time, two states — Maharashtra and Andhra Pradesh — have hired a private agency to estimate the future liability arising out of pension to their employees and suggest ways that could soften the blow.
The move may pave the way for switching over to a contribution-based pension scheme for state government employees at a later point. States like Maharashtra and Andhra have to cough up between Rs 2-3,000 crore as pension outgo every year.
This needs to change. Most states are clueless as to the future liability on pension, even though multilateral agencies estimate the combined figure at one-third of the country''s GDP.
The state governments were looking for a cue from the Centre, which was supposed to suggest a future course on social benefit for new recruits.
It was felt that new recruits would be required to make contributions in creating a pension fund. However, nothing has been announced till now.
In private companies, 8.33% of the employers’ contribution to provident fund is diverted to pension fund, as per the provisions of a 1952 Act. This could be utilised in purchasing annuity schemes of LIC.
However, such funds don''t exist in case of pensions to employees of states governments, state-aided institutions and undertakings getting budgetary support.
And, the pension outgo has considerably gone up since the last pay revision.
The Maharashtra government has to tap its own resources to give pension to about 5.5 lakh employees, and the annual outgo is a little over Rs 3,000 crore.
For Andhra the numbers are 4 lakh and over Rs 2,000 crore. An estimate of future liability will have to capture the future outgo towards the present employees — 12 lakh for Maharashtra and about 10 lakh for Andhra.
The exercise would also entail ways to control the liability, possible rationalisation of schemes and fund deployment. However, as of now there’s little elbow room for fund deployment which is identical to PFs.
Indications are that some other states like Punjab, Himachal Pradesh and Jharkhand may also initiate a similar exercise.