<p>Furqan Qamar and Taufeeque Ahmad Siddiqui</p>.<p>Modified OPS promises prudent alternative</p>.<p>Dispirited by the National Pension Scheme (NPS), government employees have been up in arms to restore the Old Pension Scheme (OPS) as was available to them if they had joined the service on or before December 31, 2003. Succumbing to their pressure, the central government has devised the Unified Pension Scheme (UPS) in consultation with the Joint Consultative Machinery (JCM) – a platform for constructive dialogue between the government and its employees – but has failed to enthuse most employee associations.</p>.<p>It has, instead, provided fresh momentum to the demand for the restoration of OPS. Central and state government employees have organised themselves under banners such as the National Movement for Old Pension Scheme (NMOPS) and the Joint Forum for Restoration of Old Pension Scheme (JFROPS). They have just concluded a black week in protests and appear determined to launch a nationwide movement to restore the OPS. All India State Government Employees Federations have also joined them.</p>.<p>OPS, an unfunded pension plan based on pay-as-you-go and predefined benefits periodically enhanced by dearness allowance and pay revision, is regarded by neoliberals as fiscally imprudent, financially unsustainable, and a drain on the public purse. An RBI study recently, for example, posited that the pension liability associated with OPS by 2084 could be 4.5 times higher than that of NPS and that the reversion from NPS to OPS could cost the exchequer 0.9 per cent of the GDP compared to the 0.2 per cent under NPS.</p>.<p>Such arguments and projections may not be entirely accurate. Pensions, as deferred salary payments, support employees post-retirement and help employers attract and retain top talent, boosting productivity. Pensioners contribute to economic growth by spending on consumption, healthcare, and services while returning taxes to the government. Their savings spur capital formation, and as families become more nuclear, their reliance on professional services generates additional employment opportunities.</p>.<p>Critically, government employees lament that NPS has deprived more than 90 lakh of them, including 23 lakh central government employees, of a pension plan available since at least 1924. Their grouse has been so compelling that several states notified the restoration of OPS. Sensing the political fallout, the central government constituted a committee headed by the then Finance Secretary to see if NPS could be suitably modified to provide a guaranteed pension, resulting in UPS.</p>.<p>Unlike NPS, which leaves pensioners to the vagaries of the market, UPS guarantees a pension of 50 per cent of the average monthly basic pay plus DA drawn in the final year of service, provided the employee completes a minimum of 25 years of service. It also provides for period revision in pension, thus offering predefined pension benefits much like the OPS. However, UPS relies on defined contributions by employers and employees to a pension fund. Employees must contribute 10 per cent of their salary, while the government at least 18.5 per cent.</p>.<p>UPS is an upgrade over NPS but with less pensionary benefits in aggregate than OPS. The OPS guarantees employees a lifetime monthly pension equivalent to half of their last pay drawn, which is periodically enhanced. So much so that if an employee survives 100 years, their monthly pension becomes equivalent to the last pay. This, however, happens rarely because the average life expectancy in India is only 70.62 years. It could be as high as 77 years for the pensioners.</p>.<p>On the flip side, UPS provides for the payment of a lump sum amount equal to one-tenth of their monthly salary for every six months of completed service. Thus, after 25 years of service, employees would get just five months' salary. In contrast, the General Provident Fund (GPF), an integral part of the OPS, would entitle them to receive about three years' salary for the same contribution.</p>.<p><strong>Formulating a Funded Plan</strong></p>.<p>This issue could be resolved by extending GPF to all employees. They may contribute at least 10 per cent of their salary, which they already contribute under NPS, or as much as the GPF rules permit. The accumulated fund with accrued interest would be payable to them upon retirement. Since employers do not contribute to GPF, there shall be no financial burden on the public exchequer.</p>.<p>Since the government has now agreed to a predefined guaranteed pension with periodic increases, making the OPS a funded plan remains the only issue to be addressed. Even that issue is substantially addressed with the government agreeing to contribute 18.5 per cent of the basic pay and DA towards the employees' pension. The pension fund created may generate a sufficient revenue stream to pay the guaranteed pension so long as the Assets Under Management (AUM) of pension funds are managed to earn a return of 8.6 per cent.</p>.<p>If market returns exceed 8.6 per cent, the pension fund will generate a surplus, which could be reinvested in the fund to create a buffer against future market shocks. Should they fall short and this buffer become exhausted, the government could adequately replenish the pension fund to compensate for the loss of market return. It is calculated that every 1% dip in the pension portfolio return in a specific year would warrant a 4.1% increase in the employer’s contribution. This is similar to the provision already proposed by UPS.</p>.<p>An 8.6 per cent return on investment is reasonable. Pension funds under NPS have delivered attractive average returns. Equities yielded a return of 26.94 per cent in the past year and 13.3 per cent since inception. Corporate bonds, government securities, central government schemes, and state government schemes showed average annual returns of 9.06 per cent, 8.62 per cent, 9.46 per cent, and 9.32 per cent, respectively. Notably, nearly all mutual fund schemes in India, specifically equity and hybrid schemes that have reached a 25-year milestone, have yielded returns in the double digits.</p>.<p>In conclusion, the modified OPS would become financially feasible and a funded pension plan with guaranteed employee benefits. A quick calculation indicates that this modified OPS shall restrict the fiscal burden to 0.3 per cent of the GDP. Thus, it presents a sustainable solution by establishing the equilibrium between fiscal prudence and political necessity.</p>.<p><em>(The writers teach at the Faculty of Management Studies of Jamia Millia Islamia)</em></p>
<p>Furqan Qamar and Taufeeque Ahmad Siddiqui</p>.<p>Modified OPS promises prudent alternative</p>.<p>Dispirited by the National Pension Scheme (NPS), government employees have been up in arms to restore the Old Pension Scheme (OPS) as was available to them if they had joined the service on or before December 31, 2003. Succumbing to their pressure, the central government has devised the Unified Pension Scheme (UPS) in consultation with the Joint Consultative Machinery (JCM) – a platform for constructive dialogue between the government and its employees – but has failed to enthuse most employee associations.</p>.<p>It has, instead, provided fresh momentum to the demand for the restoration of OPS. Central and state government employees have organised themselves under banners such as the National Movement for Old Pension Scheme (NMOPS) and the Joint Forum for Restoration of Old Pension Scheme (JFROPS). They have just concluded a black week in protests and appear determined to launch a nationwide movement to restore the OPS. All India State Government Employees Federations have also joined them.</p>.<p>OPS, an unfunded pension plan based on pay-as-you-go and predefined benefits periodically enhanced by dearness allowance and pay revision, is regarded by neoliberals as fiscally imprudent, financially unsustainable, and a drain on the public purse. An RBI study recently, for example, posited that the pension liability associated with OPS by 2084 could be 4.5 times higher than that of NPS and that the reversion from NPS to OPS could cost the exchequer 0.9 per cent of the GDP compared to the 0.2 per cent under NPS.</p>.<p>Such arguments and projections may not be entirely accurate. Pensions, as deferred salary payments, support employees post-retirement and help employers attract and retain top talent, boosting productivity. Pensioners contribute to economic growth by spending on consumption, healthcare, and services while returning taxes to the government. Their savings spur capital formation, and as families become more nuclear, their reliance on professional services generates additional employment opportunities.</p>.<p>Critically, government employees lament that NPS has deprived more than 90 lakh of them, including 23 lakh central government employees, of a pension plan available since at least 1924. Their grouse has been so compelling that several states notified the restoration of OPS. Sensing the political fallout, the central government constituted a committee headed by the then Finance Secretary to see if NPS could be suitably modified to provide a guaranteed pension, resulting in UPS.</p>.<p>Unlike NPS, which leaves pensioners to the vagaries of the market, UPS guarantees a pension of 50 per cent of the average monthly basic pay plus DA drawn in the final year of service, provided the employee completes a minimum of 25 years of service. It also provides for period revision in pension, thus offering predefined pension benefits much like the OPS. However, UPS relies on defined contributions by employers and employees to a pension fund. Employees must contribute 10 per cent of their salary, while the government at least 18.5 per cent.</p>.<p>UPS is an upgrade over NPS but with less pensionary benefits in aggregate than OPS. The OPS guarantees employees a lifetime monthly pension equivalent to half of their last pay drawn, which is periodically enhanced. So much so that if an employee survives 100 years, their monthly pension becomes equivalent to the last pay. This, however, happens rarely because the average life expectancy in India is only 70.62 years. It could be as high as 77 years for the pensioners.</p>.<p>On the flip side, UPS provides for the payment of a lump sum amount equal to one-tenth of their monthly salary for every six months of completed service. Thus, after 25 years of service, employees would get just five months' salary. In contrast, the General Provident Fund (GPF), an integral part of the OPS, would entitle them to receive about three years' salary for the same contribution.</p>.<p><strong>Formulating a Funded Plan</strong></p>.<p>This issue could be resolved by extending GPF to all employees. They may contribute at least 10 per cent of their salary, which they already contribute under NPS, or as much as the GPF rules permit. The accumulated fund with accrued interest would be payable to them upon retirement. Since employers do not contribute to GPF, there shall be no financial burden on the public exchequer.</p>.<p>Since the government has now agreed to a predefined guaranteed pension with periodic increases, making the OPS a funded plan remains the only issue to be addressed. Even that issue is substantially addressed with the government agreeing to contribute 18.5 per cent of the basic pay and DA towards the employees' pension. The pension fund created may generate a sufficient revenue stream to pay the guaranteed pension so long as the Assets Under Management (AUM) of pension funds are managed to earn a return of 8.6 per cent.</p>.<p>If market returns exceed 8.6 per cent, the pension fund will generate a surplus, which could be reinvested in the fund to create a buffer against future market shocks. Should they fall short and this buffer become exhausted, the government could adequately replenish the pension fund to compensate for the loss of market return. It is calculated that every 1% dip in the pension portfolio return in a specific year would warrant a 4.1% increase in the employer’s contribution. This is similar to the provision already proposed by UPS.</p>.<p>An 8.6 per cent return on investment is reasonable. Pension funds under NPS have delivered attractive average returns. Equities yielded a return of 26.94 per cent in the past year and 13.3 per cent since inception. Corporate bonds, government securities, central government schemes, and state government schemes showed average annual returns of 9.06 per cent, 8.62 per cent, 9.46 per cent, and 9.32 per cent, respectively. Notably, nearly all mutual fund schemes in India, specifically equity and hybrid schemes that have reached a 25-year milestone, have yielded returns in the double digits.</p>.<p>In conclusion, the modified OPS would become financially feasible and a funded pension plan with guaranteed employee benefits. A quick calculation indicates that this modified OPS shall restrict the fiscal burden to 0.3 per cent of the GDP. Thus, it presents a sustainable solution by establishing the equilibrium between fiscal prudence and political necessity.</p>.<p><em>(The writers teach at the Faculty of Management Studies of Jamia Millia Islamia)</em></p>
