Amid calls, including from Opposition parties, for restoration of old pension scheme (OPS), Narendra Modi government is likely to approve a proposal to increase annual pension benefits. Reports suggest that Union Finance Minister Nirmala Sitharaman may announce in her Budget 2024 speech a guarantee of 50 per cent of employees’ last drawn salary as pension under National Pension System (NPS), which replaced OPS.
This consideration comes after coordinated efforts from central government employees about pension payouts under NPS. Central trade unions earlier met Sitharaman, pushing for restoration of OPS.
OPS versus NPS
Under OPS, retirees receive 50 per cent of their final salary as a lifelong pension, which is adjusted based on pay commission recommendations. This scheme, known as a ‘defined benefit’ plan, ensures a guaranteed pension without employee contributions during their service.
Conversely, NPS is a ‘defined contribution’ scheme where employees contribute 10 per cent of their basic salary, with government adding 14 per cent. This means pensions depend on accumulated contributions and returns.
OPS vs NPS: Key differences
Budget 2024 expectations
Expectations about enhanced annuity arise from recommendations of TV Somanathan committee that government set up in April 2023. Sitharaman had originally announced it in March 2023 to consider pension revision for central government retirees.
Finance secretary Somanathan-led committee, though, rejected demand of restoration of OPS, but it recommended that a 40-45 per cent pension guarantee might be feasible, reports say. The panel came to this view after reviewing international practices and adjustments made by some states such as Andhra Pradesh.
A 50 per cent pension guarantee is being considered due to political and employee pressures. Government may also create a dedicated fund like corporate retirement benefits to ensure that any shortfall in pension amounts is covered by it.
The committee also recommended annual assessments and establishment of the pension fund, similar to those used by companies for employee retirement benefits.
However, the enhanced pension benefits of 50 per cent of last drawn salary are likely to be available for employees who have completed or complete 25-30 years of service.
Calls for OPS restoration
On January 11, 2024, Joint Forum for Restoration of Old Pension Scheme (NJCA) urged finance ministry to reinstate non-contributory OPS for central government employees hired after January 1, 2004. This includes personnel across various sectors and autonomous bodies.
Congress party went a step ahead by abolishing NPA to bring back Old Pension Scheme in three states of Rajasthan, Chhattisgarh and Himachal Pradesh, where it came to power. The move was heavily criticised by economists and analysts who denounced it as ‘opportunistic’ move to gain votes in upcoming elections.
Congress leader Rahul Gandhi has regulary promised people reinstatement of OPS. However, party refrained from keeping promise in ir manifesto for 2024 Lok Sabha elections.
What government has said
In December 2023, Minister of State for Finance Pankaj Chaudhary informed Lok Sabha that there were no current plans to reinstate OPS for employees recruited after January 1, 2004. Government has acknowledged ongoing requests but remains focused on reviewing existing NPS framework through newly established committee.
This was in sync with Prime Minister Narendra Modi’s warning to states in Rajya Sabha in February 2023 against backdrop of some of the Congress-ruled states — Rajasthan, for example — restoring OPS. Without directly mentioning OPS restoration move, Modi said political parties should be mindful that states needed to be financially disciplined.
If the new proposal is implemented at both central and state levels, it could benefit around 8.7 million government employees enrolled under NPS since 2004.
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Old vs new pension scheme: Will Budget 2024 offer 50% of last drawn salary as annuity?
