Reserve Bank of India Alerts States Returning To Old Pension System; Know More

Reserve Bank of India States alerted against old pension regime In its latest report on state finances, the central bank said there was a major risk to sub-national fiscal horizons as some states reverted to old pension schemes. The sub-national fiscal horizon means all fiscal matters of the states and union territories. The RBI statement came after Himachal Pradesh, Chhattisgarh, Rajasthan and Punjab decided to implement the old pension scheme. According to the RBI, “by postponing current spending, states run the risk of accumulating unfunded pension liabilities in the coming future.”

Not only RBI, but former chairman of NITI Aayog Arvind Panagariya also said that states will not be able to bear the financial burden of OPS. According to him, no state can afford this as it would lead to massive liability. States would have to finance the OPS from tax revenue, he said, but there is no tax revenue so far.

Now the question arises that what is the old pension scheme and how is it different from the new one? In OPS, employees get 50 per cent of their last drawn basic pay on retirement. His dearness allowance or the average earning of the last ten months of service, whichever is more beneficial, is also added to it. There is also a condition to avail this benefit which states that the employees have to complete 10 years of service. Under the old pension scheme, employees are not expected to contribute to their pension. OPS was shut down by the BJP-led NDA government in December 2003.

In the New Pension Scheme, employees are expected to contribute 10 per cent of their basic salary to the NPS. Their employers will contribute 14 per cent. Private sector employees can also participate in NPS voluntarily but some rules have been changed for them.

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