Pension guarantee on centre’s pre-election agenda

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Amidst throngs of government employees protesting in Delhi and across India for restoring the old, guaranteed pension system (OPS), discussions are rife that the central government is set to roll out a new model that will guarantee a decent pension coverage. This is set to be put in place by November, when five Indian states go for elections. Notably, many government employees gathered at Ramlila Maidan yesterday, demanding the restoration of the old pension scheme. 

According to reports, a financially sustainable pension guarantee of up to 35-40% is possible by modifying the existing new pension model (NPS), like mandating joint contributions to the scheme by both the employees and government. A guaranteed pension of up to 50% of the employee’s last drawn salary is also in consideration. However, this would entail a substantial financial burden on states. 

Pre-Poll incentive

At present, five states namely Rajasthan, Chhattisgarh, Jharkhand, Punjab and Himachal Pradesh have gone back to the OPS model.  Rajasthan, Madhya Pradesh, Chattisgarh, Telangana and Mizoram are slated to go to polls in November. In a bid to appease voter sentiments, Rajasthan CM Ashok Gehlot recently spoke about how it is possible to implement OPS, and that the centre will have to eventually implement OPS across India. 

Regardless of the increasing demand for OPS, a recent RBI bulletin noted how reverting back to OPS could spell a financial disaster for many states in the times to come. As per RBI, the total fiscal burden of OPS on Indian states could go up by 4.5X compared to NPS by 2084. Moreover, it could also pressurize India’s GDP, constituting  0.9% of India’s annual GDP by 2060. 

On the other hand, the states going back to OPS will only save 0.1% of GDP on an average in their yearly pension payments till 2040. But post that, they would have to   incur an average additional increase in their pension expenditure by 0.5% of yearly GDP. This is because the OPS, where the government functions as the sole guarantor, will have to bear greater financial burden, as employee longevity rises. 

As the report noted, “if the current NPS subscribers stay in government service till 60 years of age, in the next 15-year period, i.e., during 2023-37, around 20% of  the current NPS subscribers will retire. However, in the succeeding 15-year period i.e., 2038-52, 60% of the current NPS subscribers (numbering around 30 lakh) will retire. Consequently, any switchback to a defined benefit pension system by the State governments will impose a huge fiscal burden on their finances during this period.

The report further emphasized that “reverting to OPS from NPS by the Indian States will be a major step backwards undermining the benefits of past fiscal reforms and compromising the interest of future generations”