"Regarding uncertainty of returns in NPS, it is stated that, though NPS is market-linked, the investments of the accumulated corpus are made in a prudential manner so as to ensure optimal returns," the Finance Ministry said in an order, a copy of which was shared with Patel.
Further, the investments under NPS are very well diversified, the ministry said, which was responding to the reference made to it by the Ministry of Personnel, Public Grievances and Pensions seeking its comments.
"In fact, the Asset Under Management (AUM) of the central government (Rs 1.45 trillion) and state government (Rs 2.20 trillion) schemes have been invested through pension funds across the government securities (around 50 per cent), corporate bonds (around 36 per cent) and only around 10 per cent is in equities and rest in money market instruments," it said, adding that the scheme has provided returns of around 9.5 per cent since inception.
Also, NPS investments are continuously monitored by NPS trust at the first-level and regulated by the Pension Fund Regulatory and Development Authority (PFRDA) under the PFRDA Act 2013, the ministry said, adding that the investment guidelines are also reviewed from time-to-time, as per the prevailing market conditions.
Stating that currently, the equity market is volatile, it said, "Volatility in the equity market gets evened out in the long run, for a very long term product like pensions, with vesting period of around 30-40 years."
It said NPS is a considered policy decision of the central government for its employees and balances providing old age income security to employees with managing the fiscal burden of the government on account of pensions and other developmental needs.
Responding to a suggestion made by Patel that NPS corpus equivalent to employees' contribution may be transferred to the government's treasury and declared as General Provident Fund (GPF), the finance ministry said, adding that it was "not legally tenable in terms of PFRDA Act, 2013 and PFRDA (Exit and Withdrawal) Regulations, 2015, specified by PFRDA, as they stand today".
"Further, the request is also not financially tenable as lump-sum withdrawal/disinvestment of such a huge amount of Rs 1.80 trillion suddenly would amount to off-loading about Rs 90,000 crores of government securities and state development Loans, about Rs 65,000 crores of corporate bonds and Rs 18,000 crores of equities, which will have a catastrophic impact on financial and securities markets and will have very serious adverse fiscal implications," the order said.
Therefore, it said, the suggestions made in the representation are financially untenable and may be counterproductive for the economy, NPS subscriber, and the government's goal of reducing unproductive expenditure and unfunded liability.
Since January 2004, the Centre and state governments have implemented a share-market based pension system for their employees, including the ones in autonomous organisations, said Patel, who represents NMOPS, a non-profit organisation with over 1.3 million central and state government employees as its members.
NMOPS has demanded that the central and state governments should come out with relevant legislations to modify this NPS, where both employees and employers contribute a certain sum of money, close on the lines of the old pension scheme, Patel said.
The old scheme allows the contribution of a definite amount of basic salary of the employees into the government's treasury by declaring it a general provident fund (GPF).
The GPF, which would be in many crores of rupees, can then be used by the central and state governments to supplement their fight against Covid 19, as the amount will be with their respective treasuries, which are under their control and free from the risk of the stock market, said Patel, who works with the Delhi government.
In his petition, Patel said PFRDA has Rs 3.41 trillion assets under management in the form of contributions from the central and state government, and their employees as on January 31.
There are around 6.776 million subscribers of NPS, 2.82 million central government, and 4.693 million state governments, Patel said quoting PFRDA data.
For many years, NPS is being criticised by some associations of central and state government employees and many protests have been held by them demanding restoration of a guaranteed older pension system for old age social-economical security, he said.
NMOPS, formed to oppose NPS system, is working actively in over 16 states and Union Territories, including Delhi, Uttar Pradesh, Bihar, Rajasthan, Haryana, Punjab, Himachal Pradesh, Madhya Pradesh, Maharashtra, Kerala, and Andhra Pradesh, among others.