Indian Civil Servants Pension Liability Projections: An Alternative Framework

The central government pension scheme of India has experienced a major shift from January 1, 2004. These reforms have been undergone to contain the fiscal liability. This paper first critically examines the existing frameworks to project pension liability. An alternative framework is developed using which the paper projects the pension liability for the next 100 years both under the New Pension Scheme (NPS) and the Old Pension Scheme (OPS).In order to introduce any type of reform in the pension system of an economy the projection of pension expenditure over a time horizon under the existing system and the reformed system remains vital. This is because the planners need to know how the reform affects the pension expenditure of the economy both in the short and long run. India reformed its central government civil servants' pension system from a pure defined benefit system to a contributory pension system for the central government civilians and continued with the defined benefit system for the armed forces. This reform aimed at containing the pension expenditure of the central government. Its extended interest was to enhance the pension coverage to all old citizens of the country in the long run such that it can provide a pension for all. The new scheme success depends on it ability to contain the fiscal liability.In India projecting the pension expenditure remains a challenge because of non-availability of centralized data. In order to project pension it is required to have average pension and average pay for every year of each group (A, B, C and D). Also there is requirement to have the age distribution of the employees and pensioners. Further death rates at each level are also necessary. In India and other developing countries like Bangladesh and Pakistan these data are not available sometimes due to lack of compilation and security reasons (defense sector). Nevertheless, the number of employees and the pension expenditure are available in a coherent manner for the civil sector. The defense sector rarely gives reliable data on the number of employees, but some scrambled data can be collected from them. Under such circumstances, it becomes extremely difficult to predict the future pension liability and hence requires a lot of assumption. However, earlier studies have made two factors responsible for pension expenditure. The first one being projection of the pensioners and the second one was per capita pension. This paper with certain realistic assumptions tries to arrive at the number of pensioners from the number of employees with the help of an independent model. It predicts the Indian central government civil service pension expenditure for 100 years using its calculation of pensioners. The study finds out that the current scheme is not satisfying its objective. Although it decreases the pension liability in comparison to the fully defined benefit scheme but it does decrease it in the future in comparison to the current scenario. The pension liability increases in future and this was not definitely desirable from a reform.