Reverting to old pension scheme poses big financial risk, RBI warns States

Among the States, Himachal Pradesh, Rajasthan, Chhattisgarh, Jharkhand and Punjab have so far restored the Dearness Allowance (DA) linked OPS for their employees

Calling it a big financial risk, the Reserve Bank of India has advised States against the likely reversion to old pension system (OPS).

In its latest report titled ‘State Finances: A Study of Budgets of 2022-23’, the central bank reversion to OPS by some States poses a major risk on the “subnational fiscal horizon” and would result in accumulation of unfunded liabilities in the coming years for them.

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Among the States, Himachal Pradesh, Rajasthan, Chhattisgarh, Jharkhand and Punjab have so far restored the Dearness Allowance (DA) linked OPS for their employees.

The OPS was discontinued by the Atal Bihari Vajpayee government in 2003 and introduced the National Pension System (NPS) from April 1, 2004. However, the Armed Forces was excluded from the new pension scheme.

The NPS is a participatory scheme, where employees contribute to pension corpus from their salaries, with matching contribution from the government, and is market-linked.

“A major risk looming large on the subnational fiscal horizon is the likely reversion to the old pension scheme by some states. The annual saving in fiscal resources that this move entails is short-lived,” the RBI report said.