Old Pension Scheme: Why it is at centre of poll discourse in state after state

For three months between August and October, employees in Himachal, organising themselves under the New Pension Scheme Employees’ Association, were on a hunger strike demanding the restoration of the old system. In May and September, thousands of employees conducted major rallies in various parts of Gujarat, making the same demand.

Inaugurating the party’s campaign in Himachal at a rally earlier this month, Congress leader Priyanka Gandhi Vadra said the party would restore the OPS if voted to power. In a tweet in Hindi, Congress leader Rahul Gandhi said the Congress would promise “fixed jobs for contractual workers, bringing back the old pension scheme and timely promotions” in Gujarat.

Gujarat has over 7 lakh state government employees, and a return to OPS could impact 3-4 lakh employees. Himachal has 2.5 lakh employees.

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AAP had also promised a return to the OPS during the Punjab poll campaign in February this year, vowing to restore the OPS within a month of coming to power. As protests against the delay threatened to embarrass the party amidst the Himachal poll campaign, on October 22, Punjab Chief Minister Bhagwant Mann announced it would fulfill the promise.

The issue also figured in the Uttar Pradesh elections this February.

The OPS, the NPS

As per the OPS – discontinued on April 1, 2004 – pension constituted 50 per cent of the last drawn salary of an employee. This entire amount was paid by the government. The government replaced this system with the national pension scheme (NPS) or contributory pension scheme for employees who joined on or after April 1, 2004.

Under the new scheme, regulated under the PFRDA (The Pension Fund Regulatory & Development Authority) Act, 2013, every government employee is allotted a Permanent Retirement Account Number, and has to mandatorily contribute 10% of pay and dearness allowance to the pension fund, which is matched by the government. This money can then be invested by fund managers. After the latest amendment, in 2019, the government share of the contribution has been raised to 14% from 10%.

On retirement, the employee can withdraw 60% of the corpus but is required to invest at least 40% to purchase an annuity from an insurance firm regulated and registered by government authorities. The interest on the annuity is to be provided as a monthly pension to the employee.

The change

The basic difference is that the NPS is a contribution-based pension system. Under the old system, pension was fixed as 50% of the last basic salary drawn, along with other benefits. Hence, the benefit due was defined beforehand. However, in the case of the NPS, the pension benefit is determined by factors such as the amount of contribution made, the age of joining, type of investment, and the income drawn from that investment.

Many employee unions have also voiced the fear that there can be no guarantee of fixed returns on the pension money invested by fund managers, and have cited previous instances of fraud.

The Centre left it to states to adopt the new system, and they have the power to roll it back.

Before Punjab announced it would do so, Chhattisgarh, Jharkhand and Rajasthan announced the restoration of the OPS.