Old and new pension schemes spark controversy in the country Old and new pension schemes spark controversy in the country Article by Ritika KheraNews WAALI

The debate on the New Pension Scheme (NPS) and the Old Pension Scheme (OPS) has heated up again. The Congress government in Rajasthan promised to implement it. Subsequently, parties in the states of Punjab, Himachal Pradesh, Jharkhand, Chhattisgarh have also included it in their manifestos and policies. The pension scheme only affects formal sector workers. The share of the formal sector in total employment is less than 10%. Some government employees with permanent posts (Teachers, IAS, Judges) get the highest salaries. The government minimum wage in the 7th Pay Commission is Rs 18,000 per month. According to the Global Inequality Database, this is the median income in a country, meaning that 50% of people earn less than this. GCC has a defined contribution ie every month the employee and their employer contribute a portion of the salary (10 to 15%) to the pension fund. The amount deposited in this fund is invested in various places (mutual funds etc.). Earnings on this investment are received every month after retirement depending on the state of the stock market. NPS has problems. This is the US pension system. As a result of the financial crisis of 2007-08 thousands of teachers lost their pensions. Risk is also a major disadvantage of NPS. The answer is to keep the investment safe and protect the income from risk. This requires transparency in the monitoring and investment decisions of those who manage them. Making regulatory bodies transparent and controlling them is easy to say, but the American experience has found it difficult to do. OPS defined the benefits as 50% of the salary drawn in your last job as a pension when you retire. It also has measures to protect against inflation. Where will the money come from? The pension liability will be paid from the proceeds of the revenue. It is estimated that expenditure on pensioners at state level is only one fourth of the revenue from taxes.

Is this a fair system? The pension of an employee who earns a salary ranging from a few thousand to lakhs per month is borne through direct and indirect taxes collected from the people of the country, including the poorest of the poor. In this view, OPS pensioners are also dependent on taxes paid by the poor. Is it right to fund the pensions of the country’s richest out of the savings of the poor? Another question is, if we go from NPS to OPS, there will be savings for the government today, because the government’s contribution as an employer to the pension fund will be saved, but the employees will have to pay the pension when they is retiring. . Thirdly, as OPS is more burdensome on the government than NPS, in the long term the financial burden per employee will increase and each additional appointment will cost the government more money. India already has a low government worker-to-population ratio (ie how many doctors, nurses, teachers, police, etc. per thousand people) compared to international benchmarks. Increased financial burden will affect their appointments. Fourthly, there is a lack of revenue in the budget for the weaker departments. The share of social security schemes in government expenditure is negligible; Only 1% of GDP is spent on health. If the OPS pension was not the government’s responsibility, the government would have had revenue for health, education, social security. Once the salaries of government employees were not special, but the situation changed after the 7th Pay Commission. Now it should not be difficult for government employees to contribute. (This is the author’s personal opinion.)

Economist Ritika Khera, teaches at IIT Delhi