News Highlight
Select Central government employees can opt for Old Pension Scheme.
Key Takeaway
- The government has made an essential step by offering a one-time option to select Central Government employees to migrate to the Old Pension Plan (OPS).
- It applied for jobs before the National Pension System (NPS) was announced on December 22, 2003, but entered the service in 2004, when the NPS went into force.
Old Pension Scheme (OPS)
- About
- The scheme ensures a lifetime income after retirement.
- Employees under the former programme received a pension based on a predetermined formula equal to 50% of their last drawn wage.
- They also benefit from the twice-yearly adjustment of Dearness Relief (DR).
- The payout is predetermined, and no deductions were made from the salary.
- Furthermore, the OPS included a General Provident Fund (GPF) provision.
- GPF is only offered to government employees in India.
- It permits all government employees to contribute a portion of their salaries to the GPF.
- And the total amount accumulated during the employment tenure is reimbursed to the employee upon retirement.
- The Government bears the expenditure incurred on a pension.
- The scheme was discontinued in 2004.
Major issues associated with the OPS
- No specific corpus
- The fundamental issue was that the pension liability remained unfunded; there was no pension corpus.
- In addition, it would grow indefinitely and could be used to make payments.
- Unsustainable
- Pension liabilities would keep growing since pensioners’ benefits grew yearly, like salaries of existing employees, pensioners profited from indexation, or what is called ‘dearness relief’.
- Improved healthcare facilities would enhance life expectancy, and increasing longevity would result in longer rewards.
- The burden on the centre and states
- Pension liabilities for the federal government and states have risen dramatically during the last three decades.
- In 1990-91, the Centre’s pension bill was Rs 3,272 crore, while the total outlay for all states was Rs 3,131 crore.
- By 2020-21, the Centre’s bill had increased 58 times to Rs 1, 90,886 crores, while the states’ bill had increased 125 times to Rs 3, 86,001 crores.
- Bad Economics and Politics
- Pension payments by states consume a fourth of their taxable income.
- When state government employee wages and salaries are factored into this bill, states are left with almost nothing from their tax receipts.
New Pension Scheme
- About
- The OASIS report was the foundation for the New Pension Plan, which was announced in December 2003.
- With effect from January 2004, the Central Government implemented the National Pension System (NPS) (except for the armed forces).
- In 2018-19, the Union Cabinet approved improvements to the plan to benefit central government employees covered by NPS to streamline and make it more appealing.
- Furthermore, the NPS was established as a means for the government to eliminate pension liabilities.
- According to a news story based on studies from the early 2000s, India’s pension debt has reached unsustainable proportions.
Way Forward
- State governments will benefit in the short run since they will not have to contribute the 10% matching contribution to employee pension funds.
- Employees will have more take-home pay because they will not contribute 10% of their basic pay and dearness allowance to pension funds.
- Politics is bad: Contrast this with most of the workforce, which has no old-age income security but little electoral clout.
Pic Courtesy: DNA India
Content Source: The Hindu