Let's not pretend that there's no case for the Old Pension Scheme

The NPS switch has been unfair to newer government recruits for which they should be compensated one way or another

- MADAN SABNAVIS

The majority view on the Old Pension Scheme (OPS), at least in opinion spaces, is that it’s detrimental to public finances. Simply put, the OPS, which has been largely disbanded but is slowly coming back, involved paying retired personnel a pension from government revenue as long as they lived. The amount was 50% of the last pay drawn. This held for all employees who joined government service before 2004. Therefore, the government’s liability extends for a prolonged period of time. Those who joined after 2004 contribute from their salary to the new pension scheme (NPS) instead of the provident fund (PF), with the government contributing a similar amount, as with PF. On retirement, one gets payouts from the pension fund in perpetuity. But the government bears no liability. Theoretically, the pension fund cannot guarantee a return, unlike the old scheme which assured payments linked to the last drawn salary, with periodic adjustments made for inflation-based changes in dearness allowance.

The OPS is of disadvantage to the government, while the NPS disfavours the employee. That’s why some states have been looking to go back to the OPS, which critics term populist. There are arguments on both sides if populism is kept aside.