EVOLUTION OF SOCIAL SECURITY

Historically, levels of social security came to be recognised as an important criterion among

others, to distinguish whether the people in a country were mere subjects or citizens. There is
considerable historical material to trace the metamorphosis that took place by which charity
turned into a social responsibility of the State. It can be seen that the path of evolution of social
security is not very much different from the one that democracy itself took over the years.

There is no evidence that people preferred social security doles to employment. There is no
evidence either that provision of social security reduced savings. On the contrary, evidence in
many countries shows there has been expansion of savings that followed pay-as-you-go system
of financing social security. The biggest disincentive to savings in recent times is absence of
profitable and safe investment avenues whose space has been encroached upon by the
speculative arena of the stock markets. If investments are hampered, the government can always
generate a budget surplus by a suitable taxation policy, providing incentives to savings and
measured borrowing with an eye on targeted investment and employment generation.

State sponsored social security or pension schemes, unlike the private schemes required
capitalisation. After the Second World War, this was the fundamental change that took place that
State sponsored pensions were paid on the basis of the expected cost of pensions in the
following few years, without long term funding as in the case of private pension schemes. A
significant improvement was made around the 1950s that pension would be paid relative to the
average of the better paying period of their working life rather than the average of their entire
working life which would be low, though different approaches developed in this regard in different
countries. But the general principle was the same namely that the pension payment should be as
close as possible to the pay on retirement. Then came the principle of indexing of pension by
linking pension to inflation through a defined formula. There were many other changes too like the
retirement age or the qualifying period of service for entitlement to full pension.

INDIAN EXPERIENCE

In India, pension at least in so far as civil servants and military personnel are concerned has a
strong historical continuity and foundation. The benefit was not gratuitous but in exchange for
contributory provident fund. If its contribution was not funded it is not the fault of the employees.
The government must admit this reality and tell the people the accumulations in the pension fund
at least notionally. It is not a pay-as-you go scheme as the government would pretend and have
the people believe. That was why the Pension Rules of 1972 included in the list of exclusions
“persons entitled (that is opted) to the benefit of Contributory Provident Fund.”
It would be useful to refer to the principles enunciated in its justification in volume II of the report
of the Fourth Pay Commission chaired by Justice P N Singhal of the Supreme Court. The report
published in December 1986, traced the ‘custom’ of providing pensions for aged employees who
were no longer able to discharge their duties efficiently to the nineteenth century in Europe.