Adversaries of the Old Pension Scheme are honing their lethal weapons by the day to bludgeon the New Pension Scheme. Yet the governments of five states, Rajasthan, Chhattisgarh, Jharkhand, Punjab, and Himachal Pradesh have already reintroduced the Old Pension Scheme. The Karnataka government is in the process of reverting to OPS and Telangana is likely to follow suit soon since the ruling Congress party promised it in its poll manifesto.

Rebirth of the OPS in every state and may be at the Centre seems to be the fait accompli for the new government after the 2024 election given the success of employees in achieving their demands in these states and the intense battle elsewhere chiefly enthused by this success despite the tough opposition of the government at the Centre and it supporters, and despite some new hurdles in the process of switching to OPS.

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For instance, Mr Pankaj Choudhary, Minister of State, Finance said in a reply to a recent parliamentary question that the PFRDA 2023 and 2015 and other regulations do not provide for the refund of contributions to the state governments which means the states which have switched to OPS are going to have a tough time in getting back their money from the pension fund. First, a brief recapitulation of the OPS is necessary, before going deeper into the current tussle. Government employees enjoyed pension even during British times; pension was introduced in 1881.

The Royal Commission on Civil Establishments (Lee Commission) of 1924 recommended half the salary as pension for its recruits serving in India. The Government of India Act 1935 further strengthened the pension provision. So, government employees have been enjoying pension benefits, the OPS, for more than a hundred years. Notwithstanding this deeply entrenched post-retiral security, the Government of India notified in December 2003 the replacement of OPS to prospectively take effect from 1 January 2004 (applicable for those who were recruited after that date).

The old pension scheme entailed a pension of about half the last drawn salary to employees without any contribution from them towards any pension fund while the new pension scheme called the National Pension System required the employees to contribute ten per cent of their basic and DA to the pension fund and a matching contribution from the employer (the employers’ share, however, was raised to 14 per cent in 2019). All states, other than West Bengal switched to NPS one after the other in due course. Without going into too much detail, the fund collected from the employees under NPS will be paid to them on retirement, etc. along with returns on it, partly in lump-sum and partly (at least 40 per cent of the accumulated amount) as annuities/periodic pension through the Annuity Service Providers, the life insurance companies. Thus, the old pension accrued to the employees as a right and without any contribution from them. It is clearly a defined benefit with no contribution scheme, whereas the NPS entailed a defined contribution without a defined benefit. The OPS being far superior and more beneficial compared to NPS, the government employees are averse to accepting the latter. When they see their counterparts in some states succeeding in dumping NPS, they do not want to be silent spectators without themselves launching a similar movement.

Already the process is on. Indian railway employees have already threatened to go on a nationwide strike from May 1 if their demand for the restoration of old pension is not met by then. The additional impetus is that the West Bengal government never accepted the NPS while Tamil Nadu, though it accepted it in 2003, has never implemented the scheme in its true earnest. As the employees have been enjoying a pension benefit for ages, it is not an easy task for governments to convince their employees to accept an inferior benefit. The government knew this very well. So it made its 2003 notification effective from 1 January 2004 to those employees who were recruited after that date. As it did not affect the existing employees there was not enough resistance to stall the move in the beginning.

The protest started very late. Intense agitation is seen now, two decades after the launch of the NPS. Then what are the objections of the pundits who oppose the OPS and what are the counterarguments? The main argument of the former is the burgeoning financial burden on the government if the old pension is restored. A recent RBI Bulletin article (September 2023) argues that “the cumulative fiscal burden in case of OPS could be as high as 4.5 times that of NPS, with the additional burden reaching 0.9 per cent of GDP annually by 2060”. The short-run reduction in the outgo with the discarding of the NPS and the monthly payments towards it is no comfort because the longrun burden with the reintroduction of OPS will be untenably high since it is an unfunded payas-you-go model which entails payment out of the current revenues whereby the governments’ capital expenditure gets eroded with the resultant adverse impact on output, income and employment. One reason for the increasing burden as per the OPS critiques is the increasing life expectancy.

The UN projected average global life expectancy will go up to 77.2 years in 2050 from 72.9 years in 2022. The share of people above 65 years will increase from 10 per cent to 16 per cent over the same period. So, a larger pension outgo. Also, they ridicule the argument of OPS as a good old-age social security because it pertains only to government employees whose proportion is less than four per cent of the total workforce in the country and therefore it would be unjust to spend public money on this minuscule share of workers. Now, for the counter arguments.

When the critics themselves say that the OPS is for a small proportion of the workforce, how can they say the burden increases in proportion to the GDP? While the government boasts of the fast growth of the economy, the fastest in the world with the likelihood of reaching a $5 trillion level, how can it be a burden to pay pension under OPS asks noted economist Prabhat Patnaik in his recent article in People’s Democracy (14 January 2024). Patnaik also says that the pension burden will not increase in real terms since the governments do not revise the pension amount in tandem with rising inflation. He asserts the burden would proportionately decrease, not increase if the growth claims of the government are valid.

The extremely materialistic approach of the OPS-haters is that the burden would be higher on account of the increased longevity of people. The government should welcome and feel happy if life expectancy is increasing and should not feel it as a burden. The welfare of the people who include senior citizens should be its responsibility. Also, it should be understood that the longevity increase will require continued and better support to the senior citizens to ensure their dignified life without financially depending on others. The claim that the government employees’ share is very small should not make the government stop providing necessary support on the plea of fiscal constraints.

The government in a welfare state should act as an ideal employer and pay decent wages and pension to its employees. It should not stop at that but should work towards a pension scheme in the non-government sector, too, on par with its pension. It should discuss with the stakeholders on the modalities and define the benefits ~ Discuss and Define the Benefit ~ a DDB Scheme. The goal should be to revert to the OPS for government employees and take the initiative to provide adequate pension to all the employees in the private sector, and not a reduction.

(The writer is a development economist and commentator on economic and social affairs)