Amidst several States deciding to move back to old defined benefit-based pension system, the Centre has decided to constitute a committee headed by Finance Secretary TV Somanathan to suggest ways to make improvements to the National Pension System (NPS) for government employees.

“I propose to set up a committee under the Finance Secretary to look into this issue of pensions and evolve an approach which addresses the needs of the employees while maintaining fiscal prudence to protect the common citizens. The approach will be designed for adoption by both Central and State governments,” Sitharaman told the Lok Sabha just before moving the Finance Bill 2023 for passage by the Lower House. 

Already Rajasthan, Chhattisgarh, Jharkhand, Punjab and Himachal Pradesh had conveyed to the Centre about their decision to restart the Old Pension Scheme for their State government employees. They had even requested the refund of corpus accumulated by their employees under the NPS.

Read more: OPS, NPS and the AP alternative

Finance pundits and purists contend that the old pension system — which was a defined pension system — is fiscally more expensive proposition for the exchequer given the unfounded nature of pension liabilities. However, the matter has taken a political overtone, prompting political parties to use this as an election promise to wean voters.

Recently, Maharashtra saw demands for a return to the Old Pensions Scheme, with State government employees going on a strike from March 14. The strike got over on March 20 after Chief Minister Eknath Shinde assured them that the benefits of the Old Pension Scheme would be included in the new scheme.

Also read: Pension system: The old versus the new

Former PFRDA Chairman Supratim Bandyopadhyay had recently told businessline that several State government’s decision to introduce the old defined benefit pension system is a “disturbing development” and this does not augur well for the country. “This is like getting a post dated cheque from a failing bank”, he had said.

Infact, the Reserve Bank of India’s report on State Finances had highlighted that some of the States finances were not healthy to take up such unfounded liabilities that defined benefit pension systems bring about when introduced. 

India’s pension assets — NPS and APY— regulated by PFRDA is growing at robust pace and growing at CAGR of over 25 per cent in last five years to now stand at close to ₹8.8-lakh crore as of March 4.