INTRODUCTION
There is a growing demand for the old pension scheme, especially after a few states declared they would be switching back to it. The main criticism of the OPS is based on the idea of fiscal deficit and an assumption of inefficiency. Recently, the finance minister has announced that the government has formed a committee to examine the nation’s pension system and to to determine whether reforms are necessary. To harmonize the various pension plans implemented by the country’s ruling and opposition political parties, the government would consider making modifications to the nation’s pension system, which would be used by both the federal government and all state governments.
What was the Old Pension Scheme ?
The employees in the OPS received 50% of their final basic salary plus a dearness allowance upon retirement, or their average pay over the previous ten months of the job, whichever was more favorable to him. The employee was required to have ten years of service. Employees were not obligated to make pension contributions under OPS. The assurance of a post-retirement pension and a family pension was a perk for obtaining a job with the government. There was little pressure put on accumulating a retirement fund.
The New Pension Scheme
Now government employees have to contribute 10% of their basic pay, while their employer may contribute up to 14%. The scheme allows even the private sector to enroll in the NPS. Government employees participating in the NPS can choose where to invest their money by making regular contributions to a pension account throughout their careers. After retirement, people can utilize some of the pension money as a lump sum withdrawal and the remaining money to purchase an annuity for a steady income. The employees have a lot more flexibility and a lot more power over his/her destiny under the NPS.
What is the Problem in the OPS
The primary issue was that the pension liabilities were unfunded, meaning that no contributions were made to a pension corpus, which would continue to increase in anticipation of future payments. By forecasting payments to pensioners ahead of budget, the center funded pensions. Pensions as a percentage of development spending already account for a staggering 37% and 31% in states like Himachal Pradesh and Punjab, respectively, and are among the highest in the world. Therefore, switching to OPS will undoubtedly have disastrous effects on these states’ disadvantaged populations. The change will deny the poor access to vital services like healthcare and education. Additionally, it stops them from benefiting from growth prospects when funds are diverted from the underprivileged’s excessive consumption to the fortunate few’s infrastructure requirements. Therefore, the reforms in the pension scheme were a turning point for the states. If the state switch to the OPS it would mean a reallocation of funds away from state development towards to a far smaller set of those who have benefited from a secure and privileged job. Because economic services, such as infrastructure and rural and urban development, were more severely impacted than social services in OPS, this would lower the productivity of the poor, further lowering their chances of achieving economic success in the future. In other words, returning to the OPS will aggravate inequality and slowdown in economic development.
~ Aaryan Dwivedi, GNLU (Gujarat)
