Old Pension Scheme is a ticking fiscal time bomb, says Economist Saugata Bhattacharya

The Old Pension Scheme (OPS) has become a bone of contention for the Narendra Modi-led government after facing resistance from many states.  The old pension scheme was first discontinued by the BJP-led NDA government in December 2003. The new pension scheme was adopted on April 1, 2004. Several states are reversing back to the old pension scheme (OPS) as people have expressed their displeasure about the new pension system.

Top economists at the BT Banking & Economy Summit, while speaking today about the pressing issue of the old pension scheme vs the new pension scheme, said that the issue could be a disaster for the future.  Speaking at length about the pension system, Saugata Bhattacharya, Executive VP & Chief Economist, Axis Bank, said the OPS will be a disaster, a ticking fiscal time bomb. “The problem with OPS is it is benefitting a bunch of people who are on the top. Calculating all the expenditures, you have some 10-15 per cent of your receipts for development expenditures. The commitment to OPS is going to affect the development commitments. This is not sustainable in the longer run.”

“OPS is an unfunded pension and is therefore a pressure point. There is enough evidence globally, that unfunded pension schemes can lead to extreme fiscal stress at some point in time. It would be if can get that out. The New Pension Scheme is much better as at least there is funding for it,” said D K Joshi, Chief Economist, CRISIL.

But differing from these views, Madan Sabnavis, Chief Economist, Bank of Baroda, said: “Like many other subsidies, expenditures, we should take OPS as a commitment. This is more of a political issue. At the end of the day, it is the government’s job to look into the welfare of lower income groups.”

Many states have been talking about bringing back the old pension system. In September 2022, the Punjab government, which is now led by Aam Aadmi Party, said it was considering reverting back to OPS for its employees. Similarly, Himachal Pradesh, which has recently elected a Congress government in the state, has been mulling over the proposal to bring back OPS. The Congress party in the state had made tall claims of bringing back the OPS before Assembly elections and had listed it as one of its top 10 guarantees. States like Rajasthan, Chhattisgarh, and Jharkhand have already implemented the old pension scheme.