Should States revert to the Old Pension Scheme?

Earlier this year, the Central government set up a committee under the leadership of the Finance Secretary to review the working of the National Pension Scheme and evolve an approach that addresses the needs of government employees while maintaining fiscal prudence.

Should States revert to the Old Pension Scheme? 26 May 2023

Context:

Earlier this year, the Central government set up a committee under the leadership of the Finance Secretary to review the working of the National Pension Scheme and evolve an approach that addresses the needs of government employees while maintaining fiscal prudence. 

The National Pension Scheme (NPS):

  • Launched in 2004. 
  • While the older pension scheme offered defined benefits to all government employees without any contribution on their part, the NPS requires employees to contribute a sum throughout their working years. 
  • Almost two decades after the NPS came into effect, several States are switching back to the Old Pension Scheme (OPS).

Why protests against NPS?

  • In NPS, there is no guaranteed pension.
  • The demand per se is not about non-contribution, but the demand is more to do with the guaranteed pension. 

The Solution:

  • The solution is not to revert to the OPS. The solution is to restructure the NPS. 
  • The OPS is fundamentally unjust. 
  • It’s not only bad economics, it’s also bad politics.
  • The States trying to revert to the OPS are also fiscally badly managed States, their debt levels are at 40% of the GDP on average compared to the States that are really resisting this pressure.

Guaranteed Pensions as a Concept:

  • Pension is a State subject and states have the power to decide what type of pension government employees should get. 
  • A minimum guarantee pension could be fruitful. If pensioners get higher than that, if the market returns deliver higher, so be it.

Conclusion:

  • Pension being a State subject, the Centre can only provide framework and guidelines, allowing States to choose whether to opt for schemes like the NPS or develop their own.
Additional Information:

Difference between OPS and NPS:

  • In OPS, the pension amount is constant, while the NPS is an investment cum pension scheme.
  • NPS contributions are invested in market-linked securities, hence, doesn’t guarantee returns.
  • The investments in NPS are volatile and hence have the potential to generate significant returns.

                                                                                           News Source: The Hindu 

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