The Hindu Editorial Vocabulary– Dec 16, 2022; Day 385

Old is not gold: On the return to the old pension scheme

The old pension scheme works as electoral strategy but is imprudent (not wise) fiscal policy

With the freshly minted (newly minted means new) Chief Minister of Himachal Pradesh, Sukhvinder Singh Sukhu, reiterating (To say, state, or perform again) that the Old Pension Scheme (OPS) will be restored by the newly elected Congress-led government, the State would now become the fourth to do so. It is no surprise that the promise of the return of OPS — it guarantees pension at 50% of the last drawn basic pay — boosted the beleaguered (in a very difficult situation) party as government employees and retirees form a significant portion of the hilly State’s electorate. A Lokniti-CSDS post-poll survey supported the fact that awareness (74% of those surveyed) and support for the Congress’s promise was high (70%), possibly playing a role in the party pipping (to pierce (the shell of its egg) while hatching) the BJP to pole position (a leading or dominant position) — there was a single percentage point difference between them. Government staff seem to prefer the scheme as it allows them to avert (turn aside) their contribution of 10% of their basic pay and dearness allowance towards the employee pension funds, as envisaged (Form a mental image of something that is not present or that is not the case) in the National Pension Scheme (NPS) since inception in 2004. But, concomitantly (At the same time as; with others), reverting to OPS will tax the State’s exchequer (The funds of a government, institution or individual). Data show that pension payments form nearly 25.6% of States’ own tax revenue — 80% for Himachal — but fall to close to a still substantial 12% of the total revenue receipts of States. Along with wages and salaries of government staff, the burden is set to be quite high.

States reverting to OPS can achieve some short-term gains as they need not put up the matching contribution of 10% towards employee pension funds. But with a greying (To become grey) population, the burden of payments will fall on future generations. An argument can be made for enhancing State revenues by further taxation to fund the scheme. The NPS, that has been in place and which allows employees to contribute to their pension corpus (Capital as contrasted with the income derived from it) from their salaries with matching contribution from the government, is more robust as this corpus is invested through Pension Fund Managers and eases the State’s burden. The NPS has built a substantial corpus and subscriber base over time. The Congress-led UPA government had indeed taken forward the pension reforms by the previous NDA regime and this is how the NPS has become relevant over the years. Breaking a consensus (Agreement in the judgment or opinion reached by a group as a whole) on pension reforms and reverting to OPS amounts to an imprudent option as it will only benefit organised government sector employees, increase the fiscal burden of carrying these payments and take up a significant portion of the State’s budget, thereby curtailing (Place restrictions on) its outlays (The act of spending or disbursing money) on general welfare as a whole. This holds good (to apply or be relevant to) even if it allows for short-term electoral dividends and caters to those who form the backbone of the government machinery.

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