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Why are govt employees threatening to go on strike over restoration of old pension scheme?

Several unions of railway employees and workers have threatened to stop all train services across India from May 1 if their demand to implement the OPS is not met.

March 18, 2024 / 03:18 PM IST
Government employees have been protesting for the revision back to the Old Pension Scheme(Representative image)

Government employees have been protesting for the revision back to the Old Pension Scheme (Representative image)

Government employees are up in arms against the implementation of the National Pension Scheme (NPS) for them and want the old pension scheme (OPS) to be restored.

Since September 2023, government employees across the country have organised protests for their demand, with the last unrest happening in Assam last week when they staged demonstrations in front of several offices.

In November 2023, several thousands of employees and pensioners of both the Union government and State governments gathered at the Ramlila Maidan in Delhi, demanding the Centre to bring back the OPS immediately.

ALSO READ: NPS vs OPS: Will Budget 2024 settle the debate in an election year?

They threatened an indefinite strike if the demand was not met. This was the fourth such rally at the capital on the issue of reinstating the OPS.

Further, several unions of railway employees and workers have threatened to stop all train services across India from May 1 if their demand to implement the OPS is not met.

Why are government employees protesting against the NPS?

According to the National Movement For Old Pension Scheme (NMOPS), the Joint Forum for Restoration of Old Pension Scheme (JFROPS), and the National Joint Council of Action (NJCA), government employees who joined service after January 2004 are worried about their post-retirement future. Protesters voiced discontentment at the 10 percent deduction from their monthly salaries as a contribution towards the pension fund under NPS. Under the NPS, employees contribute 10 percent of their basic salary, matched by a 14 percent contribution from the government for a retirement fund. Employees have claimed that the central and state governments do not have accurate records of the number of employees working for the government, and hence there have been many cases where the government has failed to match its contribution to an employee's retirement fund. A pension is given based on funds accumulated during the service period. No dearness relief is applicable under the NPS.

What is OPS?

Introduced in the 1950s, the OPS guarantees a monthly pension equivalent to 50 percent of an employee’s last drawn basic salary. It also gives a dearness allowance upon retirement or an average of the wages earned in the previous 10 months, whichever is more favourable.

To qualify for these benefits, employees must have completed 10 years of service. There is no employee contribution required for this scheme. Moreover, income is not taxed. OPS was discontinued by the government in 2003, with the cessation taking effect from April 1, 2004. OPS has been largely disbanded but is slowly coming back, as several states like Rajasthan, Chhattisgarh, Jharkhand, Punjab, and Himachal Pradesh have announced that they will bring back OPS and West Bengal never implemented the NPS.

The major benefits of the OPS include life-long stable income in the form of a monthly pension, no deductions from the salary of government employees, thus, reducing the burden on employees, and no tax on pension income. Another benefit is voluntary contributions to OPS can be used to create a retirement corpus.

What is NPS?

Under the NPS a state government employee contributes 10 percent of his/her basic salary plus dearness allowance, with the state making a matching contribution of 14 percent. The money is then invested in one of the several pension funds approved by the Pension Fund Regulatory and Development Authority, and returns are market linked. So it does not guarantee returns. On maturity, 60 percent of the corpus is tax-free, while the remaining 40 percent is taxable when invested in annuities. The National Pension System is divided into Tier I and II accounts. Investments in Tier I accounts can’t be withdrawn till retirement age while Tier II account allows premature withdrawal. Some of the advantages of the NPS include tax benefits of up to Rs 1.5 lakh can be availed under Section 80 CCD(1) of the Income Tax Act, and higher liquidity as the deposits can be withdrawn whenever required.

NPS versus OPS: Which one offers maximum benefits?

In one line OPS is of disadvantage to the government, while the NPS disfavours the employee. That’s why some states have been looking to go back to the OPS, which critics term populist. There are arguments on both sides if populism is kept aside. Both the NPS and OPS come with their set of benefits, however, the latter has one major drawback that it offers benefits to only government employees. On the other hand, NPS provides benefits to all citizens. The NPS investment aids private sector salary earners in securing their future after retirement. In addition, NPS allows investors to avail tax benefits. The only benefit that makes OPS stand out is that it doesn't require a deduction from salary. If you are not a government employee then NPS investment could be a better choice for you.

What do the numbers say?

Minister of State in the Finance Ministry Pankaj Chaudhary in a written reply to the Lok Sabha had said that as of March 31, 2023, the total number of central government pensioners was around 68 lakh, including defence pensioners.

The argument against the OPS is that as the payout burden keeps rising, states will have to commit more of their funds to pensions, leaving less for capital expenditure and other development efforts.

According to the Reserve Bank of India (RBI) data, in 2021-22 all states had a salary bill of Rs 9.74 lakh crore and a pension bill of around Rs 4 lakh crore.

“Internal estimates suggest that if all the state governments revert to OPS from the NPS, the cumulative fiscal burden could be as high as 4.5 times that of NPS, with the additional burden reaching 0.9 per cent of GDP annually by 2060,” the RBI had said in its report titled ‘State Finances: A Study of Budgets of 2023-24’ released in December 2023.

According to the central bank, the last government employees who were hired before 2004 will retire by the early 2040s and, therefore, draw pension under the OPS till the 2060s.

"This will add a huge burden on the state's finances and restrict their capacity to undertake growth-enhancing capital expenditures," the RBI said in its report.

Yaruqhullah Khan

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