Here are 10 reasons why RBI warned states to restore Old Pension Scheme (OPS)

The old pension programme (OPS), which was in use until 2004, has been discouraged by the Reserve Bank of India (RBI), which cites the long-term consequences, including a significant fiscal load on state economies. OPS, as opposed to the National Pension Scheme (NPS), will result in the buildup of obligations, according to the central bank, which could eventually become a significant problem. Here's the reason for the warning in 10 points.

This action results in a little annual reduction in financial resources. States run the risk of accruing unfunded pension liabilities in the next years by delaying current expenses, the RBI said in its 'Report on State Finances' on Monday.

According to budget projections for 2022–2023, states should expect a 16 percent increase in pension spending as a result of OPS's reverse.

 

The State Bank of India (SBI) reported that during the 12 years ending in FY22, the cumulative annual growth rate (CAGR) for pension liabilities was 34 percent for all state governments.

Montek Singh Ahluwalia, a seasoned economist and former vice-chairman of the planning commission, has frequently emphasised that switching back to the previous pension system might be terrible for the public exchequer.

Five states have stated that they will use OPS: Rajasthan, Chhattisgarh, Jharkhand, Punjab, and Himachal Pradesh.

Around 1.36 lakh government employees who were making their part of National Pension System contributions will profit from the scheme's revival (NPS).

Himachal Pradesh already has an estimated 5 percent fiscal imbalance, which is significantly higher than the prudential limit of 3 percent.

 

States have begun paying elderly retirees using the money they earn from the working population.

In accordance with the OPS, retired employees earned monthly pensions from current revenues equal to 50 percent of their final drawn salaries.

NPS, on the other hand, is a contribution pension plan that lets someone to start planning for retirement while they are still employed.