RBI warning on Old Pension Scheme

RBI warning on Old Pension Scheme

The Reserve Bank of India (RBI) has warned states against reverting to the old pension scheme (OPS). The Old Pension Scheme was discontinued from 2004 and now it will add to the fiscal burden of States in the coming years.

As per the central bank, OPS will create liabilities that can become a major risk in the future.

RBI on old pension scheme:

According to the RBI, a significant risk towering large on the sub-national fiscal horizon is the likely reversion to the old pension scheme by some states.

RBI warned via its ‘Report on state finances’ that the annual saving in fiscal resources that this move entails is short-lived.

As per the Budget estimates for 2022-23, states are anticipated to receive a 16 per cent rise in pension expenditure at Rs 463,436 crore in 2022-23 as against Rs 399,813 crore in the previous year.

States going for OPS:

The RBI warned through its report after Rajasthan, Chhattisgarh, Jharkhand and Punjab, Himachal Pradesh has declared its intention to opt for OPS.

States are much felt comfortable to pay old pensioners with the money collected from the serving employees.

Under the OPS, retired employees are eligible to receive 50 per cent of their last drawn salary as monthly pensions.

Old pension scheme:

  • An old pension scheme (OPS) is also known as the PAYG scheme. It is an unfunded pension scheme where current revenues fund pension benefits.
  • Under this scheme, the contribution of the current generation of workers had been utilized to pay the pensions of existing pensioners.
  • OPS considered as a direct transfer of resources from the current generation of taxpayers to fund the pensioners.

National Pension System:

  • NPS is an individual to undertake retirement planning while in employment with systematic savings and investments.
  • NPS is formulated to deliver a sustainable solution of having adequate retirement income in old age or upon superannuation.
  • NPS is made compulsory for central government employees who joined services on or after January 1, 2004.
  • Even most of the all state governments have implemented it for their employees.
  • NPS is regulated by the Pension Fund Regulatory and Development Authority (PFRDA).

It is a contributory pension scheme under which employees contribute 10 per cent of their salary (Basic + Dearness Allowance).

The government brings 14 per cent towards the employees’ NPS accounts.

As of December 2022, 59.78 lakh state government employees are part of NPS, with total assets under management of Rs 4.27 lakh crore.

 

Conclusion:

  • Both the pension schemes have their own benefits but old pension scheme has dangerous public debt in long term.
  • As per the RBI’s report we can understand the discipline of rotating money and every state should follow it to make state financially stronger.

 

Question & Answer:

Q1. Who released a report about warning to states against reverting old pension scheme?

Ans. The Reserve Bank of India

Q2. In which year central government discontinued the Old Pension Scheme?

Ans. 2004

Q3. How much percent contribution made by government in new pension scheme fund?

Ans. 14%

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