RBI Bulletin Warns On Reverting To Old Pension Scheme Fiscal Costs As Pension Outgo May Increase By 4.5 Times

Old Pension Scheme Vs NPS: In recent times, Old Pension Scheme has been implemented in many states, so it is becoming the biggest election issue in Madhya Pradesh in the upcoming assembly elections. The opposition party Congress has announced to implement the Old Pension Scheme if it comes to power in the state. But an article published in the RBI Bulletin warns that the financial condition of the states may deteriorate if the old pension scheme is adopted. After re-implementation of the old pension scheme, it is possible that the pension burden of the government may increase by 4.5 times as compared to the new pension scheme.

RBI study on effects of OPS

In the article written in the RBI Bulletin issued for the month of September, which is not the opinion of RBI, it was told that a study has been done on the effects of OPS. The article said that while adopting pension reforms in the first decade of the present century, most of the states adopted the National Pension System in which contribution has to be made to get pension. But in recent times, the demands for reinstatement of the Old Pension Scheme have intensified and some states have even implemented it in their states.

Pension burden will increase on states

According to the bulletin, a study has been done on the contribution of the states in NPS and the financial implications of adopting the Old Pension Scheme by all the states. According to the study’s conclusion, re-adoption of the old pension scheme will reduce the pension expenditure of the states in the short term but will see a huge increase in unfunded pension liabilities in the future. The increasing pension burden due to the old pension scheme will exceed the contribution made by the states to NPS by 2030.

Pension burden to be 0.9% of GDP by 2060

According to an RBI study, the pension expenditure on adoption of the Old Pension Scheme will increase by about 4.5 times of the estimated pension expenditure under NPS. The burden on the treasury due to the Old Pension Scheme will increase to 0.9 percent of GDP by 2060.

Financial reforms will face a setback

The RBI bulletin cautioned that when most of the countries in the world are moving towards defined contribution plans for pension, returning to the old pension scheme by the states will prove to be a step that weakens the benefits of the previous financial reforms. The study said that withdrawal of the old pension scheme could destabilize the financial condition of the states.

Central government also under pressure

After the implementation of the Old Pension Scheme by the states, the Modi government at the Center is also under pressure because this can become a big election issue in the Lok Sabha elections in 2024. In such a situation, to improve the National Pension Scheme, an NPS Committee has been formed under the chairmanship of the Finance Secretary. Which is currently in continuous discussion with different stakeholders.

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