A study by the Reserve Bank of India (RBI) has raised caution against a return to the Old Pension Scheme (OPS), estimating that its implementation will result in a 4.5 times more financial burden on the government compared to the existing National Pension System (NPS), The Times of India (ToI) has reported.

The RBI study said, “Short-run reduction in states’ pension outgo, which may be driving decisions to restore OPS would be eclipsed by the huge rise in unfunded liabilities in the long run.” The study said that a return to the old pension scheme would be a significant step backwards. The RBI study highlighted that the shift can increase fiscal stress to unsustainable levels in the medium to long term.

States implementing OPS

The RBI report comes when five states – Rajasthan, Chhattisgarh, Jharkhand, Punjab, and Himachal Pradesh- announced their return to the OPS for government employees.

The report said that Rajasthan would have to spend 4.2 times more for its decision to return to the old scheme. Chhattisgarh and Jharkhand, on the other hand, will have to spend 4.6 times and 4.4 times, respectively, the ToI report said, citing the RBI study. The RBI study reiterates findings of earlier reports which have estimated the burden to be 4-5 times higher in the OPS than in NPS.

What is the Old Pension Scheme?

Under the Old Pension Scheme, the government pays the entire pension amount to government employees after retirement. Under the OPS, no amount is deducted from employees’ salaries when they are in service.

After retirement, government employees receive the pension amount, along with the benefit of revision in Dearness Allowance (DA) twice a year. Since the pension is based on the last drawn salary plus DA, the amount payable increases twice a year along with the DA. OPS only covers government employees.

What is the National Pension Scheme?

The National Democratic Alliance (NDA) government introduced the National Pension Scheme (NPS) in 2004 for government employees. However, it was extended in 2009 and now covers all citizens, including the self-employed and unorganised workers.

Under the NPS, citizens contribute an amount every month until they are 60 and receive a pension after retirement. Government employees can contribute 10 per cent of their basic salary plus Dearness Allowance (DA), and the government contributes 14 per cent of the basic salary plus DA every month. Other citizens can donate a minimum of Rs.500 monthly towards NPS.

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