RBI Staffers Express Concern Over States Returning to Old Pension Scheme

RBI staffs are concerned about the decision by certain states to return to the old pension scheme. They have called the move a “major step backward” and warned that it could lead states to “unsustainable” fiscal stress in the medium to long term.

In an article published on the RBI website, five RBI employees argued that the cumulative fiscal burden of the OPS could be as high as 4.5 times that of the New Pension Scheme (NPS). They also pointed out that the OPS offers defined benefits, while the NPS provides defined contributions. This means that under the OPS, the government guarantees a certain pension amount to retirees, regardless of how much money it has collected in contributions.

Under the NPS, on the other hand, the pension amount is determined by the amount of money that has been contributed, plus the investment returns.

The article further explains that while restoring the OPS may lead to a temporary reduction in states” pension outgo, this benefit would be overshadowed by a significant increase in future unfunded pension liabilities over time. Consequently, reverting to the OPS could be considered a major step backward for states, potentially leading to unsustainable fiscal stress in the medium to long term.

The RBI has clarified that the points discussed in the article are the opinions of the employees and do not reflect the official views of the Reserve Bank of India (RBI).

However, the article”s concerns are shared by many experts. They argue that the OPS is simply not sustainable.