NPS: Millions of government employees across the country have long been demanding the reinstatement of the Old Pension Scheme (OPS). However, the central government’s latest stance appears to be putting an end to this hope. The government has made it clear that the OPS era will not return, but that the New Pension Scheme (NPS) and the Unified Pension Scheme (UPS) will be the way forward.
Where did the debate begin?
In January 2004, the central government abolished the old pension scheme and implemented the National Pension System (NPS). This is a contributory system in which both employees and the government contribute a portion of their salaries. However, under the OPS, the entire pension was paid by the government, which was non-contributory and guaranteed. As the number of retired employees increased, the OPS became increasingly burdensome for the government.
Twenty-one years later, amid growing demand from employees, the central government implemented a new UPS scheme, which combines features of both the NPS and OPS, effective April 1, 2025. Contributions to UPS will be mandatory, but a minimum pension guarantee will also be provided.
Employee unions again raised the reinstatement of OPS as a key issue before the 8th Pay Commission. However, the central government reiterated its position that the reinstatement of OPS is not under consideration. A recent cabinet meeting chaired by Prime Minister Narendra Modi approved the 8th Pay Commission’s Terms of Reference. One point in these terms clearly indicated that OPS is no longer a possibility.
According to the new requirements, the Commission must consider the unfunded costs of non-contributory pension schemes when formulating its recommendations. This means that the government considers those schemes, where the entire burden falls on the public treasury, to be financially unsustainable. This same model was applied to the old pension scheme, which was therefore considered financially unsustainable and unsustainable.
UPS and NPS: The future of pension policy
According to a FE report, the central government is now considering combining NPS and UPS as a more transparent and sustainable pension system. UPS will retain the same investment system as NPS, but will also provide employees with a minimum pension security, ensuring a stable income after retirement. The government believes this model will be balanced for both employees and the economy.
Why is OPS’s return difficult?
An FE report stated that financial experts believe that reintroducing OPS would put significant pressure on government budgets. In many states, pension expenditures have already reached 20 to 25 percent of the total budget. If the central government also returns to OPS, it could lead to a shortage of funds for development schemes and welfare projects.