States courting risk by reverting to OPS: RBI

New Delhi, January 17

The Reserve Bank of India (RBI) has said some states may be courting a major risk by reverting to the old pension scheme (OPS). “A major risk looming large on the sub-national fiscal horizon is the likely reversion to the OPS by some states. The annual saving in fiscal resources that this move entails is short-lived,” said a RBI report “State Finances: A Study of Budgets of 2022-23”.

In its brief comments on the subject, the RBI said it could pose a major risk on the “sub-national fiscal horizon” and would result in accumulation of unfunded liabilities in the coming years for them.

The OPS has become a political bone of contention after it was believed that the Congress had won the Himachal Pradesh Assembly polls on the basis of a promise to restore it. Although the National Pension Scheme (NPS) was initiated by the previous UPA government, Congress governments have taken the move to revive the OPS. Rajasthan, Chhattisgarh and Jharkhand have informed the Centre and the Pension Fund Regulatory and Development Authority (PFRDA) about their decision to restart the OPS.

Punjab, too, issued a notification on November 18, 2022, on implementing the OPS for state government employees who are currently covered under the NPS. The UPA government had, in 2004, introduced the NPS which is self-contributing instead of the OPS under which employees are entitled to pension which is half the last drawn salary.

Note of caution

It (the OPS) can pose a major risk on the sub-national fiscal horizon and will result in accumulation of unfunded liabilities. — RBI