A day after protests broke out in Haryana over bringing back the Old Pension Scheme (OPS), the central government fielded two top officers – Finance Secretary TV Somanathan and Financial Services Secretary Vivek Joshi – to stress that switching back to OPS from NPS (New Pension Scheme) will create huge liability for States in the future.

“If you shift to OPS from NPS, the burden is getting shifted from the current government and current generation to future governments and future generations. Initially, the government may see a benefit because they don’t have to make the pension contribution. There could be fiscal benefit in the short run but it will be offset by huge liability which will come when pension has to be paid in the future,” the Finance Secretary said in the presence of Finance Minister Nirmala Sitharaman, who, along with other Secretaries and Chief Economic Advisor, was in Jaipur to address a press conference on the Budget.

Restarting OPS

Rajasthan was the first State which announced switching back to OPS, followed by Chattisgarh, Jharkhand, Punjab and Himachal Pradesh. These States have informed the Central Government and the Pension Fund Regulatory and Development Authority (PFRDA) about their decision to restart OPS for the State Government employees. They are now seeking reversal of accumulated corpus of subscribers under NPS to them from Central Government/PFRDA.

Using the EPFO (Employees Provident Fund Organisation) analogy, Somanathan said if an employer says he has reached an agreement with the employees and he would like to take back employer share, the EPFO will not give his money back, because the moment the money is credited into employee’s account, it belongs to the employee legally and can be disposed of only in accordance with the terms of enactment which governs the fund. “It’s just not possible legally for the GoI and PFRDA to give the money back to the State government,” the Finance Secretary said.

Financial Services Secretary Vivek Joshi said switching is not a good trend. State governments are postponing their liability. Employees feel this move is beneficial, but remains to be seen whether this is beneficial or not. “Money deposited under NPS belongs to employees based on agreement between employee and NPS trust. If the employee withdraws before the age of retirement, then 80 per cent of accumulated money will be used to buy annuity, while he will get 20 per cent as lump-sum. If the States think they can get the money, it is not possible,” he clarified.

Employees joining Central Government on or after January 1, 2004 are part of NPS. Barring West Bengal, all States adopted NPS for new joinees with almost similar timeline. Under NPS, employees are required to deposit 10 per cent of their salary (basic plus dearness allowance) in a fund for pension. Governments can contribute up to 14 per cent.

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