Debate over the NPS sharpened last year after Congress-ruled states such as Rajasthan, Chhattisgarh and Himachal Pradesh decided to go back to the old defined benefit system. In contrast, the NPS is a defined contribution scheme through which an employee accumulates a corpus for retirement.
States that return to the Old Pension Scheme (OPS) may face unsustainable fiscal stress, according to a report in the Reserve Bank of India’s September bulletin. The cumulative fiscal burden under OPS could be 4.5 times higher than the National Pension Scheme (NPS), with an additional burden of 0.9% of GDP annually by 2060. The authors warn that unfunded OPS may place severe pressures on state finances in the future.
