NEW DELHI: As the year draws to a close, the National Pension System (NPS) has been a central topic of discussion and debate in the country.
Finance Minister Nirmala Sitharaman’s establishment of a high-level committee aimed at addressing the issues surrounding the existing pension system launched in 2004 has kept the political pot boiling throughout the year.
Amidst the ongoing discussions, the Finance Ministry will likely announce plans to introduce changes to the NPS for government employees before the year concludes.
Reports suggest that the proposed scheme would be modelled around the Andhra Pradesh pension system, guaranteeing a pension based on 40-50% of the employee’s last drawn basic salary. This new pension system would be market-linked, with the government stepping in to fill any shortfall in the pension corpus. While employees will continue to contribute as before, the government’s contribution is expected to increase.
The panel, led by the finance secretary T V Somanathan, is working on modalities of the scheme. The Andhra Pradesh model, which ensures pensioners receive 50% of their last drawn basic salary along with inflation-linked dearness allowance (DA), seems to have influenced the proposed changes.
As of March 31, 2023, state and central government employees accounted for 79% of the Rs 9 lakh crore asset under management of the NPS, according to data from the Pension Fund Regulatory and Development Authority (PFRDA). The NPS boasted a total of 6.3 crore subscribers, with 60.72 lakh subscribers from state government employees and 23.86 lakh from central government employees.
However, the contemplated reforms have faced political pressures, with BJP-ruled states pushing for amendments to the NPS to introduce a scheme similar to the old pension system, appealing to voters ahead of elections. Certain non-BJP-ruled states, such as Himachal Pradesh, Rajasthan, Chhattisgarh, Punjab, and Jharkhand, have already reverted to the old pension system, which places a higher burden on states to fund employee pensions.
The ongoing discussions have also sparked broader debates on the sustainability of the old pension system. Sanjiv Sanyal, Principal Economic Advisor to Prime Minister Narendra Modi, pointed out that demographic shifts and declining birth rates pose challenges to sustaining the old scheme.