Why the Centre would not let the Indian States, who have reinstated the ‘Old Pension Scheme’, to actually implement it?

 

Old Pension Scheme: A far-fetched dream or an approaching reality?

The ‘Old Pension Scheme’ or the defined benefit pension scheme was a popular retirement scheme for government employees in India until it was replaced by the National Pension System (NPS) in 2004.

The NPS is a contributory pension scheme where the employee and the employer make monthly contributions which are invested in market-linked instruments, and the pension received is based on the returns generated. However, several state governments in India have been pushing to reinstate the ‘Old Pension Scheme’ citing reasons such as low returns and market volatility under the NPS.

Despite the state governments’ efforts, the central government has been reluctant to let the states implement the ‘Old Pension Scheme.’ The reasons for this reluctance are varied, and they have been a subject of much debate and discussion in the political circles.

One of the primary reasons cited by the central government is the financial burden that the ‘Old Pension Scheme’ would impose on the state exchequer. The defined benefit nature of the scheme means that the pension benefits are pre-determined and guaranteed, regardless of the market conditions. On the other hand, the NPS is a market-linked scheme, and the pension benefits are based on the returns generated by the investments made. This means that the liability of the government under the NPS is much lower compared to the ‘Old Pension Scheme.’ The central government fears that the reinstatement of the ‘Old Pension Scheme’ would increase the fiscal deficit of the state governments, which could have wider implications for the national economy.

Another reason cited by the central government is the administrative burden that the ‘Old Pension Scheme’ would impose on the state governments. Unlike the NPS, where the investments and the pension benefits are managed by professional fund managers, the ‘Old Pension Scheme’ is managed by the state governments themselves. This would require the state governments to set up a separate department to manage the pension funds, which would not only be time-consuming but also expensive.

Apart from the above reasons, the central government has also been critical of the ‘Old Pension Scheme’ for its lack of transparency and accountability. There have been several instances in the past where the pension funds were misused or diverted by the state governments for other purposes. The central government fears that the reinstatement of the ‘Old Pension Scheme’ would only exacerbate these problems.

NPS vs OPS: The debate continues…

In conclusion, while the ‘Old Pension Scheme’ may have its advantages, the central government’s reluctance to let the state governments implement it is understandable. The financial burden, administrative burden, and lack of transparency and accountability are genuine concerns that need to be addressed before the scheme can be reinstated. At the same time, the state governments need to come up with a viable plan to manage the pension funds and ensure their proper utilization. Only then can the ‘Old Pension Scheme’ be reinstated in a manner that benefits the government employees without putting undue strain on the state exchequer.