Kerala’s Pension Dilemma: A Review of the Contributory Pension Scheme

Current Affairs, Governance

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Following a recent Supreme Court decision, a report on Kerala’s contributory pension scheme—which was implemented in 2013—has been made public. Because of the scheme’s financial impact on the state, it was implemented in 2013 and has caused criticism. Let’s examine the National Pension System (NPS), the pension situation in Kerala, and the review committee report’s conclusions in more detail.

NPS: A Quick Recap

  • NPS: What is it? Kerala is one of the states that are part of the National Pension System (NPS), a contributory pension plan that was launched by the Indian government in 2004.
  • How Operates: A fund is created under NPS from contributions made by employers and employees while they were employed. In contrast to the prior government-funded pension plan, NPS entails buying an annuity plan after retirement, which gives the pensioner an annuity.

Kerala’s Pension Scenario

  • Pension Challenges: A long life expectancy after retirement and an increase in the number of employees registered in NPS are the key causes of Kerala’s growing pension liabilities.
  • Impact on the Budget: The state devotes a large amount of its funds to fixed expenses, such as interest payments, pensions, and salaries. Pension makes up twenty-one percent of this cost.
  • 10% of the salary (including dearness allowance) of employees hired after April 2013 is contributed to the NPS corpus.

The Review Committee Report

  • Not Reversible Recommendation: The review committee found the NPS to be legally sound and did not suggest doing away with it.
  • Alternative Suggestions: It recommended adding dearness allowance at 14% and increasing the state government’s contribution from 10% to 14%. Permission to grant NPS subscribers a death-cum-retirement payout was also suggested in the report.

Why the Report Supports NPS?

  • Long-Term View: The committee took a longterm approach to pension issues, predicting that maintaining NPS will eventually lower pension outlays relative to the state’s GDP.
  • Reducing the Revenue Deficit: As pension outlays decline, so does the revenue deficit’s portion, freeing up funds for social services and capital projects.

Arguments against NPS in Kerala

  • Low Annuities: Compared to the previous pension plan, retirees under the NPS have reported receiving very little in the way of annuities.
  • Market Risks: Because contributions are spread throughout a variety of assets, there are worries about how stock market crashes may affect NPS investments.
  • Demand for Reintroduction: As a result of employee demand, several states have brought back statutory pension plans.


  • The evaluation report highlights the long-term financial benefits of NPS and recommends its continuation in Kerala.
  • Nonetheless, several governments are considering going back to the previous pension plan due to ongoing worries about low annuities and market risks.
  • In light of welfare and financial concerns, the discussion surrounding Kerala’s contributory pension plan is still ongoing.

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