New Delhi: Recently, the Congress government led by Sukhwindar Singh Sukhu announced that it will reinstate the Old Pension Scheme, the strongest winning point and prime poll promise in Himachal Pradesh. Soon after the announcement, the government job holders, who form a large chunk of the voting population in the state, danced to joy. However, the news triggered worry among financial experts and the Reserve Bank of India, which has now issued a warning against the reversal of OPS.
Read More: Tech Layoffs: GoMechanic to fire 70% of workforce for restructuring, says co-founder Amit Bhasin
The Reserve Bank of India (RBI) has warned states to revert to the old pension scheme (OPS), which was in practice till 2004 citing the long-term repercussions like a heavy fiscal burden on state economies. The central bank said that OPS – instead of the National Pension Scheme (NPS) — will lead to the accumulation of liabilities which can become a major risk in the future.
Here are 10 points on RBI’s strict warning against OPS:
Read More: Tired of Uber and Ola surge prices? InDrive app may offer some relief, how does it work?
- The annual saving in fiscal resources that this move entails is short-lived. By postponing the current expenses, states risk the accumulation of unfunded pension liabilities in the coming years,” the RBI said in its ‘Report on state finances’ on Monday.
- As per the Budget estimates for 2022-23, states are expected to incur a 16 per cent rise in pension expenditure owing to the reversal of OPS.
- According to a report by the State Bank of India (SBI), the compounded annual growth rate (CAGR) in pension liabilities for the 12 years ended FY22 was 34 per cent for all the state governments.
- Veteran economist and former deputy chairman of the planning commission, Montek Singh Ahluwalia has repeatedly stressed that going back to the old pension scheme can be disastrous for the state exchequer
- Rajasthan, Chhattisgarh, Jharkhand, Punjab and Himachal Pradesh are five states that have announced that they will opt for OPS.
- The restoration of the scheme will benefit around 1.36 lakh government employees who were contributing their share to the National Pension System (NPS)
- Himachal Pradesh is already staring at a fiscal deficit of around 5%, which is way higher than the prudential level of 3%.
- For the time being states have adopted paying old pensioners with the money collected from the serving employees.
- Under the OPS, retired employees received 50 per cent of their last drawn salary as monthly pensions, which came from the current revenues.
- NPS, on the other hand, is a contribution pension scheme which enables an individual to undertake retirement planning while in employment.
