THIRUVANANTHAPURAM: It seems the state government is unlikely to reinstate the old pension system for its employees soon. The government has given a declaration to the Union government that it does not intend to return to the old system in 2023-24.
The declaration filed by the additional chief secretary (finance) was to fulfil the new norms on borrowings, a reliable source told TNIE. Reinstating the old pension system was a poll promise of the ruling Left Democratic Front.
A condition introduced by the central Department of Expenditure (DoE) from 2023-24 would be a dampener on state governments desiring to return to the old pension system of ‘pay-as-you-go with defined benefits’, the source said.
It says that an amount equalling the additional borrowing space issued ‘since FY23’ will be deducted from the net borrowing ceiling of a state in the year in which it shifts from the National Pension System (NPS).
Kerala had availed the additional borrowing space granted in compensation for switching over from the system of 'pay-as-you-go with defined benefits' to the NPS.
With a view to ensure a proper yardstick for all states, the DoE launched an extra borrowing ceiling for states that adopted the NPS. Named ‘pension funding adjustment’, this extra ceiling would be equivalent to the employer’s and employees’ share of contribution actually deposited with the National Securities Depository Limited or the trustee bank of the NPS.
Kerala had availed an additional borrowing of Rs 1,755.82 crore in 2022-23 under this provision. This year, the state opted for an additional space of Rs 1,755.5 crore in support of the declaration by the ACS (Finance).
DoE ‘space’ based on govt estimates
The DoE gives the initial permission for extra borrowing space based on the estimate given by the state government on the amount to be paid to the NPS.
Any excess or shortfall between the actual and estimate will be adjusted in the subsequent year based on the actual data from the Pension Fund Regulatory and Development Authority.
Explaining its rationale for allotting additional borrowing space, the central DoE on its website says the fiscal deficit of states that did not adopt the NPS does not reflect the contributions towards future liabilities for pension payment. On the other hand, states which made necessary contributions would give the impression of a higher fiscal deficit.