Why do experts think states’ promise to return to the old pension system is a bad idea?
- Punjab latest state to consider reverting to old pension scheme
- The old pension scheme was replaced by the national pension scheme in April 2004
- AAP and Congress vowed to return to PAHO if elected to power in Gujarat
Increase in the retirement age on the cards? EPFO says this will be key to sustainability of pension systems
Gujarat Announces 3% Increase in DA for Government Employees; Additional charge of Rs 1,400 crore on the Treasury
So why are states promising to return to the old scheme and why is it becoming a sounding promise? Do government employees form a significant vote bank and can states really afford to roll back?
Experts believe this may be a bad idea and fall within the scope of a gift, a debate that is still pending as the top court is still hearing a case on the issue of the gift.
Deepak Shenoy, Founder and CEO of Capital Mind tweeted: “This is a terrible decision. Taxpayers will pay HUGE pensions in the future if this becomes the norm. Very retrograde. This is just another insane gift we will be paying , but these politicians will go out of power by then.”
Even a study by the SBI shows that if states chose OPS over NPS, it simply would not correspond to sound budgetary prudence.
“If we assume that all states migrate to the old regime, and assuming an entry age of 28, with inflation indexation of 5%, the present present value of the implicit pension liabilities is around 13% of GDP, discounted by the current 40-year G-sec yield. This is the implicit pension debt that will not be funded under the pay-as-you-go scheme,” the study notes.
And if you have to go through the appeasement, to see how much a bank of votes to government employees is forming. It can be noted that subscribers of various pension schemes increased by 24.7% of which central government subscribers increased from 21.82 lakh in May 2021 to 22.97 lakh in May 2022 while government subscribers of the state fell from 52.37 lakh in May 2021 to 56.40 lakh in May 2022.
|-Promises a fixed monthly income to government employees||-Employees contribute 10% while employees and government contribute 14%|
|-Provides 50% of the last salary received as a pension||-Private sector employees can also join the NPS|
|-No tax benefits are applicable to employees||-Investment up to `1.50 lakh is tax deductible under Section 80C|
|– Income from the old pension plan is not taxable||-Additional annual investments up to 50,000 are tax deductible under Section 80CCD(1B)|