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Old Pension Scheme and related issues - Coggle Diagram
Old Pension Scheme and related issues
Context
Some political parties are promising to switch to the Old Pension Scheme in the opposition-ruled states.
Old Pension Scheme
It was hence described as a ‘Defined Benefit Scheme’.
To illustrate, if a government employee’s basic monthly salary at the time of retirement was Rs 10,000, she would be assured of a pension of Rs 5,000.
It existed before a new pension system came into effect for those joining government service from January 1, 2004.
Also, like the salaries of government employees, the monthly pay-outs of pensioners also increased with hikes in dearness allowance or DA.
Pension to government employees at the Centre as well as states was fixed at 50 per cent of the last drawn basic pay
Concerns with the OPS
‘Pay-as-you-go’ scheme created inter-generational equity issues
The present generation had to bear the continuously rising burden of pensioners
Usual budgetary allocation
Far extended pay-outs due to better survival of retirees
Liability remained unfunded
What was planned to
address this situation?
Recommendations
Safe (allowing up to 10 per cent investment in equity),
Balanced (up to 30 per cent in equity), and
Growth (up to 50 per cent in equity)
Balance would be invested in corporate bonds or government securities
Its primary objective was targeted at unorganized sector workers who had no old age income security
Individuals would have unique retirement accounts, and would be required to invest at least Rs 500 a year
In 1998, the Union Ministry of Social Justice and Empowerment commissioned a report for an Old Age Social and Income Security (OASIS) project
Alternative to OPS:
New Pension Scheme
The NPS for Central government employees was notified on December 22, 2003.
It was originally conceived for unorganized sector workers, was adopted by the government for its own employees
NPS was proposed by the Project OASIS report; it became the basis for pension reforms.
Issues with OPS
Low curtailment in salaries
Old age security
Deferment to contribution
Why need pensions at all?
They provide a steady source of income when one needs the most.
It helps inculcate fiscal discipline.
Pension helps you accumulate a part of your income, over a long period, so that this money can be used post-retirement.
Conclusion
Freebie trending parties considering following the same trend
Risks involved in the transition of NPS-borne employees to OPS regime are substantive
NPS vs. OPS will play out in the some state assembly elections