Introduction

The Maharashtra Cabinet has approved a proposal allowing certain state government employees to opt for the old pension scheme (OPS).
The option is extended to employees who joined the service after November 1, 2005, based on recruitment advertisements issued before that date.

Transition in Pension Schemes

Old Pension Scheme (OPS): The OPS guaranteed a pension of half the last basic salary plus dearness allowance after a minimum of 10 years of service, without employee contributions. It also provided family pension and Death cum Retirement Gratuity (DCRG).
New Pension Scheme (NPS): Introduced to address the growing pension bill, the NPS is a market-linked, participatory scheme requiring contributions from both employees and employers.

OASIS Project: Initiated in 1999, it led to the recommendation of the NPS by the Atal Bihari Vajpayee government in 2003.
Scheme Details: Employees contribute 10% of their basic salary, matched up to 14% by the employer. The funds are invested in PFRDA-regulated pension funds with market-linked returns.
Account Management: NPS provides a Permanent Retirement Account Number (PRAN) for lifelong account management.
State Adoption: All states except West Bengal have implemented the NPS. Some opposition-ruled states announced plans to revert to the OPS.

Pension Debt Sustainability: The OPS was a fiscal burden without accumulated funds, whereas the NPS relies on accumulated funds.
Addressing Ageing Population: With increasing life expectancy, the OPS became unsustainable.
Preventing Early Retirements: The NPS encourages longer service due to its long-term investment fund ideology.
Investment and Flexibility: NPS offers flexible investment options and the freedom to switch investment options and fund managers.

Market Risks: The exposure of retirement funds to market uncertainties raises concerns about old age security.
Pension Amount Concerns: There is no minimum pension guarantee, and pensions under NPS do not adjust for inflation.
Accountability Issues: Questions remain about the security of the invested corpus and accountability in market failures.

State Governments’ Challenge: Reverting to OPS requires careful consideration of financial implications on future generations.
Review and Strengthening of NPS: Measures such as introducing inflation-indexed annuities, assuring minimum returns, and ensuring timely registration and contributions can strengthen the NPS.
Balanced Approach: A nuanced approach is needed to balance fiscal sustainability with providing adequate social security to retirees.