The yet-to-be-formed Congress government in Karnataka is likely to take a final call on restoring the old pension scheme (OPS) for State government employees after the Centre-appointed Committee submits its report on the National Pension System (NPS).

OPS is a defined pension system where an employee gets a pension at a defined ratio post-retirement without making any contributions. NPS is a defined contributory system where employees and employers are required to contribute on a regular basis towards a fund that will be used to pay pensions.

Not on the agenda

Unlike Himachal Pradesh, restoring OPS is not on the suggested agenda, for the first Cabinet meeting of the new Government of Karnataka. Even in its manifesto for the State Assembly, the Congress just said that it will sympathetically consider the extension of OPS to the pensionable government employees who joined services since 2006.” Even though NPS was introduced on April 1, 2006, it was operationalised in the State from April 1, 2010.

Now, the indication is that the new government might wait for the recommendations of the TV Somanathan Committee, constituted by the Centre. The four-member committee has been asked to suggest measures to improve the pensionary benefits of government employees covered under the NPS.

The terms of reference of this panel include whether, in light of the existing framework and structure of the NPS as applicable to government employees, any changes are warranted. If so, the panel suggests such measures as are appropriate to modify the same with a view to improving upon the pensionary benefits of government employees covered under the NPS, keeping in view the fiscal implications and impact on overall budgetary space, so that fiscal prudence is maintained to protect the common citizen.

However, no timeline has been specified for when the panel report needs to be submitted. 

All the Congress-ruled states—Rajasthan, Chhattisgarh, and Himachal Pradesh—have restored the OPS for their employees. Apart from these three, Jharkhand and Punjab too have announced implementing OPS. However, all five States have faced issues with money deposited by their employees since the introduction of NPS because of a provision in the pension regulatory authority law.

In a written reply, Minister of State for Finance Bhagwat Karad said in the Lok Sabha that there is no provision under the Pension Fund Regulatory and Development Authority Act, 2013, read along with the PFRDA (Exits and Withdrawals under the National Pension System) Regulations, 2015, and other relevant Regulations, vide which the accumulated corpus of the subscribers, viz., government contribution and employees’ contribution towards the NPS, along with accruals, can be refunded and deposited back to the State Government, added Karad.

Pension liablities

Now, a debate is on restoring OPS will generate votes, but at the same time, implementation will create liability for future generations. As per the Reserve Bank of India’s report titled ‘State Finances: A Study of the Budget of 2022–23, the annual saving in fiscal resources that reversion to the old pension scheme entails is short-lived. By postponing current expenses to the future, States risk the accumulation of unfunded pension liabilities in the coming years.