Finance Minister Nirmala Sitharaman said the new pension scheme is better and will satisfy most government employees.
| Photo Credit: ANI

Accusing Congress of spreading misinformation, Finance Minister Nirmala Sitharaman on Tuesday (August 27, 2024) said the newly launched UPS is a new pension scheme and not a rollback.

“It is not a rollback… it is different from OPS (Old Pension Scheme) and NPS (National Pension System). It is clearly a new package,” she said, adding, the Unified Pension Scheme (UPS) is better and will satisfy most government employees.

UPS is tailored in such a fashion that every calculation fits and even the government is not burdened too much, she said.

Ms. Sitharaman expressed hope that most of the states would adopt UPS “as it has a lot of benefits for employees”.

Employees gather at Ramlila Maidan in New Delhi, during the “Pension Shankhnaad Maharally”. File
| Photo Credit: Shiv Kumar Pushpakar

Finance Minister Nirmala Sitharaman on July 23 said a solution will be evolved with respect to the New Pension Scheme (NPS) that will address relevant issues and ensure fiscal prudence.

Last year, the finance ministry had set up a committee under Finance Secretary T V Somanathan to review the pension scheme for government employees and suggest any changes, if needed, in the light of the existing framework and structure of the National Pension System.

Several non-BJP-ruled states had decided to revert to the DA-linked Old Pension Scheme (OPS) and also employee organisations in some other states have raised demand for the same.

In her Budget Speech in the Lok Sabha, Ms. Sitharaman said the Committee to review the NPS has made considerable progress in its work.

She said the staff side of the National Council of the Joint Consultative Machinery for Central Government Employees have taken a constructive approach.

“A solution will be evolved which addresses the relevant issues while maintaining fiscal prudence to protect the common citizens,” the minister said.

Under the OPS, retired government employees received 50% of their last drawn salary as monthly pensions. The amount keeps increasing with the hike in the DA rates.

The Finance Minister also announced measures to improve social security benefits.

Towards this, she said deduction of expenditure by employers towards NPS is proposed to be increased from 10 to 14% of the employee’s salary.

Similarly, deduction of this expenditure up to 14% of salary from the income of employees in private sector, public sector banks and undertakings, opting for the new tax regime, is proposed to be provided.

The Finance Minister also proposed to start ‘NPS-Vatsalya’, a plan for contribution by parents and guardians for minors.

On attaining the age of majority, the plan can be converted seamlessly into a normal NPS account.

Mumbai:

States reverting to the old pension scheme is a “major step backwards” and may take the fiscal stress of states to “unsustainable levels” in the medium to long term, according to an article by RBI staffers.

The article by Rachit Solanki, Somnath Sharma, RK Sinha, SR Behera and Atri Mukherjee said the cumulative fiscal burden in the case of the Old Pension Scheme (OPS) could be as high as 4.5 times that of the New Pension Scheme, which was implemented over a decade ago as part of pension reforms.

The views expressed in the research paper are not that of the Reserve Bank of India (RBI).

Recently, Rajasthan, Chhattisgarh, Jharkhand, Punjab and Himachal Pradesh have announced reversal to the OPS from NPS, the article said.

The OPS has Defined Benefits (DB) while the NPS has defined contributions, the article said, adding that while the OPS has a short term allure, the same poses challenges in the medium to long term.

“…short run reduction in states’ pension outgo which may be driving decisions to restore OPS, would be eclipsed by the huge rise in future unfunded pension liabilities in the long run,” it said.

“States’ reverting to the OPS would be a major step backwards and can increase their fiscal stress to unsustainable levels in the medium to long term,” the article warned.

The immediate gain for states shifting back to the OPS is that they will not have to spend on the NPS contribution of the current employees, but in the future, the unfunded OPS is likely to exert “severe pressures” on their finances, it said.

States will save only 0.1 per cent of GDP in yearly pension outgo by reverting to the OPS till 2040 but would be required to incur an average additional increase in pension expenditure by 0.5 per cent of yearly GDP post 2040.

It said several developed economies with DB schemes in the past have faced rising public expenditure due to the rising life expectancy of its citizens, and the changing demographic profile and rising fiscal costs have compelled several economies around the world to re-examine their pension schemes.

“Any reversion to the OPS by the states would be fiscally unsustainable, though it may result in an immediate fall in their pension outgo,” the article said.