Old pension plan: why it is at the center of the discourse of polls state after state

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The promise to restore the old pension scheme (OPS) is one of the grounds on which the Congress and the Aam Aadmi party are vying for elections in Himachal Pradesh and Gujarat.

For three months, between August and October, Himachal employees, organized in the Association of Employees of the New Pension Scheme, went on a hunger strike to demand the restoration of the old system. In May and September, thousands of employees held large rallies in various parts of Gujarat, making the same demand.

Opening the party’s campaign in Himachal at a rally earlier this month, Congress leader Priyanka Gandhi Vadra said the party would restore OPS if elected to power. In a tweet in Hindi, Congress leader Rahul Gandhi said Congress would promise “fixed jobs for contract workers, bringing back the old pension scheme and timely promotions” to Gujarat.

Gujarat has over 7 lakh of state government employees, and a return to PAHO could impact 3-4 lakh of employees. Himachal has 2.5 lakh employees.

The AAP had also promised a return to the PAHO during the Punjab election campaign in February this year, promising to restore the PAHO within a month of taking office. As protests over the delay threatened to embarrass the party amid Himachal’s election campaign, on October 22 Punjab Chief Minister Bhagwant Mann announced he would keep his promise.

The issue also featured in Uttar Pradesh’s elections in February.

OPS, NPS

According to the FPO – discontinued on April 1, 2004 – the pension was 50% of an employee’s last salary. All of this sum was paid by the government. The government replaced this system with the National Pension Scheme (NPS) or contributory pension scheme for employees who joined on or after 1 April 2004.

Under the new scheme, governed by the PFRDA (The Pension Fund Regulatory & Development Authority) Act 2013, every government employee is assigned a permanent pension account number and is required to contribute 10% of salary and of his allowance to the pension fund, which is matched by the government. This money can then be invested by fund managers. After the last amendment, in 2019, the government share of the contribution was increased from 10% to 14%.

Upon retirement, the employee can withdraw 60% of the capital but is required to invest at least 40% to purchase an annuity from an insurance company regulated and registered by government authorities. The interest on the annuity must be paid as a monthly pension to the employee.

Change

The fundamental difference is that the NPS is a contribution-based pension system. Under the old system, the pension was set at 50% of the last basic salary received, together with other benefits. Thus, the service due has been defined beforehand. However, in the case of the NPS, the pension benefit is determined by factors such as the amount of contribution paid, the age of joining, the type of investment and the income earned from that investment.

Many employee unions have also expressed concern that there may be no guarantee of fixed returns on pension funds invested by fund managers, and cited previous cases of fraud.

The Center left it up to the states to adopt the new system, and they have the power to roll it back.

Before Punjab announced it would, Chhattisgarh, Jharkhand and Rajasthan announced the restoration of OPS.

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