Central government panel may recommend hybrid pension scheme for states

A committee formed by the Modi government to look into the issue of pension schemes for central and state employees may recommend that states be allowed to adopt something similar to the hybrid Guaranteed Pension Scheme implemented by the Andhra Pradesh government, which combines features of the old and new pension schemes, DH has learnt.

The panel is headed by Finance Secretary T V Somanathan, and was set-up in early April, in the backdrop of a number of Opposition-ruled states having reverted to the dearness allowance-linked Old Pension Scheme (OPS) and employee unions in many states are asking for the same.

Also Read — DH Deciphers | Pension contention: Here is all you need to know about the old versus the new

The panel has been given no deadline as such, but is expected to submit its report to Finance Minister Nirmala Sitharaman in July, a senior official said.

"The hybrid model (guaranteed pension scheme) is something we are examining closely. A few meetings have taken place and it is likely that a scheme which has the best features of both OPS and NPS will be recommended," the official said.

A second official said that if such a recommendation is accepted by the Centre, it can suggest to the states to implement a guaranteed scheme and could even provide fiscal and budgetary incentives, like allowing the latter to borrow more money from the bond markets.

Explained | Higher pension under Employee Pension Scheme

"The Centre's main concern is that OPS would increase the outlay of the states and thus may impact their stated fiscal deficit targets of 3.5 per cent of respective gross state domestic products (GSDP)," said the second official. Fiscal deficit is the difference between a government's expenditure and revenue, when the former is higher, and is the most important indicator of centre or states' financial health.

The OPS offers fixed pensions to employees after retirement. The pension amount is 50 per cent of their last drawn salary. The NPS, meanwhile, is an investment-cum-pension scheme. NPS contributions are invested in securities like debt and equity instruments. Thus, it does not guarantee fixed pensions but provides high returns in the long term, resulting in a significant lump sum and monthly pensions.

The Guaranteed Pension Scheme, which was cleared by Andhra CM Jagan Mohan Reddy's Cabinet last week, combines the elements OPS and NPS. The scheme was proposed for the first time in April 2022 and offered a guaranteed pension of 50 per cent of the last drawn basic pay without any deduction to the state government employees. For this, they would need to contribute 10 per cent of their basic salary every month, and the state government will match it.

Rajasthan, Chhattisgarh, Jharkhand, Punjab, and Himachal Pradesh have informed the Centre about their decision to revert to the OPS and have requested a refund of corpus accumulated under the NPS.

Considering OPS for employees who joined service after 2006 was also part of the Congress' manifesto before the recent Karnataka elections. On Tuesday, Chief Minister Siddaramaiah said that the new Congress government would discuss OPS in the next cabinet meeting.