RBI bulletin warns on adoption of OPS, pension expenditure of states will increase by 4.5 times

Old Pension Scheme vs NPS: The old pension scheme has been implemented in many states in recent times, so it is shaping up to be a major electoral issue in Madhya Pradesh in the upcoming assembly elections. The opposition party Congress has announced to implement the old pension scheme after coming to power in the state. But an article published in the RBI Bulletin warned that if the old pension scheme was adopted, the financial condition of the states could deteriorate. After the re-implementation of the old pension scheme, the pension burden on the government is likely to increase by 4.5 times as compared to the new pension scheme.

RBI study on impact of OPS

An article in the RBI Bulletin for the month of September, which is not an opinion of the RBI, states that a study has been conducted on the impact of OPS. The article states that while adopting pension reforms in the first decade of the present century, most of the states adopted the National Pension System in which one has to contribute to get the pension. But in recent times there has been a growing demand to revive the old pension scheme and some states have even implemented it in their states.

Pension burden on states will increase.

According to the bulletin, a study has been conducted on the contribution of states to NPS and the financial implications of adoption of the old pension scheme by all states. According to the conclusion of the study, 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 rising pension burden due to the old pension scheme will increase by 2030 with the contribution of states to NPS.

The pension burden will be 0.9 percent of GDP by 2060.

According to an RBI study, on adoption of the old pension scheme, pension expenditure would increase by about 4.5 times the estimated pension expenditure under NPS. The burden on exchequer due to old pension scheme will increase to 0.9% of GDP by 2060.

Financial reforms will suffer.

RBI’s bulletin warned that while most of the world is moving towards a defined contribution plan for pensions, a return to the old pension scheme by states would be a step that would undermine the benefits of previous fiscal reforms. Is. The study said withdrawing the old pension scheme could destabilize the fiscal position of the states.

The central government is also under pressure

The Modi government at the Center is also under pressure after states implemented the old pension scheme as it could become a major electoral issue in the 2024 Lok Sabha elections. In such a situation, an NPS Committee has been formed under the chairmanship of the Finance Secretary to improve the National Pension Scheme. which is currently in continuous discussions with various stakeholders.

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