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Governance

The Old Pension Scheme (OPS): A Call for Equitable Resource Distribution

In India, demand for the old pension scheme (OPS) is increasing, especially after some states announced plans to reinstate it. The mainstream criticism of OPS revolves around worries about inefficiency and fiscal deficits. However, it is critical to examine the strategy from the standpoints of class and welfare.

Pension

  • A pension is a retirement plan that gives individuals with a stream of income after they retire from their work or profession. It is intended to provide a steady income during retirement and can be funded by employers, government agencies, or unions.

Old Pension Scheme (OPS)

  • The OPS, also known as the Defined Benefit Pension System, is an Indian government pension plan for its workers.
  • Retired government workers receive a fixed monthly pension under the OPS based on their last drawn pay and years of service.
  • The government pays for this pension with current revenues, resulting in higher pension liabilities.

Analyzing the Impact of OPS on India’s Socio-Economic Landscape

  • Inequality and Regressive Redistribution: The Sixth Pay Commission increased the basic salary of government workers under the National Pension System (NPS) to cover pension contributions and encourage post-retirement savings. As a consequence, a government employee’s salary exceeds that of more than 90% of the population. As a result, the OPS functions as a regressive redistribution mechanism that benefits the better-off class.
  • Rising Pension Liabilities: As a result of the Sixth Pay Matrix, the government’s pension liabilities increased significantly, hitting 9% of total state expenditure. Pension spending will account for 19.4% of total state spending by 2050, assuming the current growth rate stays constant.
  • Inequitable weight on the Lower Class: The bottom 50% of the population bears an inequitable weight of indirect taxes that is six times their income. They must endure the burden of supporting government workers’ pensions as a result of OPS, which may push them further into poverty.
  • Expenditure Challenges and Public Goods: As India’s population ages and public provision of education and healthcare becomes more important, OPS presents expenditure challenges for delivering public goods. This scenario forces governments to reduce already low social sector spending, further impoverishing marginalized groups.
  • Monopolization of Future Labor Markets: The OPS enables a proprietary class from monopolizing future labor markets in the private sector, enabling supervisory bureaucracy to consolidate its position and emerge as a dominant group.

Recommendations for Efficient Resource Allocation

  • Opposition to the OPS should concentrate on equitable resource distribution and the expansion of universal public goods provisions.
  • To achieve more egalitarian results, implement a participatory pension scheme for government employees.
  • Change the NPS to provide lower-level workers with a guaranteed monthly return.
  • Administrative reforms can help to address unequal pay among different levels of workers.
  • Advocate for progressive taxation of the top 10%, as well as a reduction in political leaders’ pensions and spending.

@the end

It is critical to identify the disillusionment with neoliberalism that is driving the demand for the OPS. To address the challenges presented by OPS, government employees and policymakers must collaborate to execute pension reforms that prioritize equitable resource distribution, efficient allocation, and societal welfare.

Source: https://www.thehindu.com/opinion/op-ed/the-old-pension-scheme-as-a-burden-on-the-poor/article66650018.ece
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