Old Pension Scheme

Repealed from 1 January 2004, it had a defined-benefit (DB) pension of half the Last Pay Drawn (LPD) at the time of retirement along with components like Dearness Allowances (DA) etc.

[4] An employee joining the central or state services prior to 1 January 2004 would receive pension payments as lifetime income security from the time of retirement (at age 58, in most cases) until death.

The amount received monthly as Superannuation Pension was derived from number of years served and 10-month average salary before the retirement.

[9] The simple administration with provision for a secure income for pensioners is the advantage of this scheme while the employer, i.e., government in this case, bears the risk.

[10] Since pension is both a reward for continuous service till the formal age of retirement as well as a form social security in old age, India favored a restructured pension ensuring a balance between retirement benefit of the government employees and the financial burden on the economy by moving from DB scheme to DC scheme.

[10] A Policy Research Report by World Bank in 1994 titled "Averting the Old Age Crisis" gave rise to the worldwide discussion on pension sector reforms.

[12] The report submitted by the group to government noted in its foreword: "The logic of the welfare state had prompted most of the developed countries to introduce increasingly liberal post-retirement benefits to their citizens.

[15] The Supreme Court of India in one of its judgement noted that pension for a retiree "is neither a bounty nor a matter of grace depending upon the sweet will of the employer."

The court held that it is a social welfare measure, aimed at rendering socioeconomic justice "to those who in the heyday of their life ceaselessly toiled for the employer on an assurance that in their old age they would not be left in the lurch.

[17] RBI in its 2003 study found that the committed expenditure of few States on salary, pension and interest payable for borrowed money together has already exceeded their total revenue receipts.

[10] State governments spend huge amount of money in Pensions for its employees as compared to developmental expenditure like Health, Housing, Social Welfare for general public etc.

These employees in GIAs and LBs - such as Municipalities; Panchayat raj institutions, Zilla Parishads, State Electricity Boards, Road Transport Corporations etc.

[17] Several states are reintroducing the old pension scheme (OPS) and this has drawn criticism from various political leaders, economists, financial planners and subject matter experts.

On several states reverting back to OPS, the Finance Minister Nirmala Sitharaman expressed "We should look at a reasonable balance and what we are leaving for generations to come.

Yes, you need to borrow for the economy to run, but unless we have a complete understanding of the fiscal health of the state, for not just today but future decades, the rush to a conclusion may not be good.

"[18] Raghuram Rajan, former RBI Governor in an interview at the World Economic Forum (WEF), Davos, cautioned that huge liabilities will build up in future if OPS is adopted.

[20] Saugata Bhattacharya, Executive VP & Chief Economist at Axis Bank, termed the disaster of bringing back of OPS as a ticking fiscal time bomb.

[23] In 2023, RBI published a report in 2023 titled 'State Finances: A Study of Budgets of 2022-23' in which it remarked the decision of some state governments to restore OPS will give rise to a major risk on "subnational fiscal horizon".

[26] After two decades of being scrapped, the OPS has been re-implemented for government employees towards fulfilling election promises in the states of Himachal Pradesh, Chhattisgarh, Rajasthan, Jharkhand and Punjab.

[1] To a question in 2022 Lok Sabha session raised by Asaduddin Owaisi of AIMIM, the ruling BJP Government has clarified that there is no proposal under consideration for restoration of the Old Pension Scheme (OPS).

[27][29] INC leader Rahul Gandhi accused the BJP government of making elderly people dependents and promised restoration of OPS as they have done in Rajasthan and Chhattisgarh if Congress is voted to power in 2022 elections.

[30] On the lines of implementing OPS in Punjab, Aam Aadmi Party also made similar electoral promises for around seven lakh government employees of Gujarat.

[31] On becoming the Chief Minister, Sukhvinder Singh Sukhu declared the Congress government will restore the Old Pension Scheme in the first cabinet meeting.

[33] On 3 March 2023, the state government declared that there will be no deduction in salaries towards NPS accounts of 1.36 lakh employees effective from April and those who were retired from service after 15 May 2003 will also be eligible for OPS.

By introducing the Himachal Pradesh Fiscal Responsibility and Budget Management (Amendment) Bill, 2023, the newly formed Congress government increased limit of borrowing by additional 50% from the existing 4% of the Gross State Domestic Product (GSDP) to 6%.

[27] 1.26 lakh employees are already covered in OPS and Rs 16,746 crore is accumulated in the pension funds of its manpower recruited after implementation of NPS in the state.

The State Government demanded return of the entire corpus of 39,000 crores accumulated till date in the NPS accounts of its employees who joined the workforce after enactment of PFRDA law.

[27] Gehlot has considered the option to escalate this matter to Supreme Court if funds are not returned and claimed the BJP lost the 2022 state elections to Congress including Himachal Pradesh "over the issue of OPS".