Why Old Pension Scheme is not feasible for country
Finance Minister Nirmala Sitharaman categorically said recently that states which have reverted to the fiscally unsustainable old pension system (OPS) can’t withdraw the accumulated corpus from the National Pension System (NPS) as these funds belong to the employees as per the law.
The minister was responding to questions relating to a demand raised by the Congress government in Rajasthan, which has sought the return of the NPS corpus, but the Centre has declined to do so. Sitharaman said like in the Employees Provident Fund Organisation (EPFO), the corpus in NPS belongs to subscribers.
India’s Old Pension Scheme (OPS) has been a point of contention for quite some time. The scheme, which was introduced in the 19th century, was created to provide government employees with a secure retirement income. However, over time, the OPS became unsustainable due to its high cost and limited coverage, resulting in its replacement by the New Pension Scheme (NPS) in 2004.
State governments in India have recently been reverting to the old pension scheme, which guarantees a defined benefit pension to government employees, rather than the National Pension System (NPS), which is a defined contribution scheme. While this may be a popular move among government employees, it can have several negative consequences for the development of the states.
Firstly, the old pension scheme is a significantly more expensive option for state governments. It requires them to make much larger contributions towards employee pensions, which can put a strain on government finances. This can result in a reduction in funding for important development projects, such as infrastructure, education, and healthcare, which can hinder the long-term development of the states.
Secondly, the old pension scheme is an unfunded scheme, which means that the cost of pension payments is borne by the government’s current revenue. This can create a huge burden for future generations, who may have to bear the cost of pensions for retired government employees. This can limit the ability of future governments to invest in development projects and address the needs of their citizens.
Thirdly, the old pension scheme is a static system, which does not take into account the changing demographics of the country. As life expectancy increases and the number of retired government employees grows, the cost of pensions will continue to rise, putting an even greater burden on state finances. This can limit the ability of state governments to invest in important development projects and address the needs of their citizens.
While reverting to the old pension scheme may be popular among government employees, it can have significant negative consequences for the long-term development of the states. It can put a strain on government finances, create a burden for future generations, and limit the ability of state governments to invest in important development projects. Therefore, state governments should consider alternative options, such as the NPS, which can provide a sustainable and cost-effective solution to pension payments, while also promoting long-term development.
Having said that, Let me tell you all, how New Pension Scheme helps in building the nation. The Status Quo-ists in the country may well can harbour dreams of Old Pension scheme but it is disastrous for the country. Let see the benefits of the new pension scheme.
The New Pension Scheme (NPS) is a defined contribution pension scheme that was introduced in India in 2004. It is aimed at providing retirement income to all citizens, including those working in the unorganized sector. The NPS is a market-linked scheme that invests contributions in various financial instruments such as equities, government securities, and corporate bonds. Here are some ways in which the NPS can help in building the nation:
1. Encourages savings: The NPS encourages individuals to save for their retirement by contributing regularly towards the scheme. This helps in building a culture of savings among citizens, which can lead to greater financial stability and economic growth in the long run.
2. Promotes financial inclusion: The NPS is open to all citizens, including those working in the unorganized sector. This helps in promoting financial inclusion by providing a retirement income to those who were previously excluded from traditional pension schemes.
3. Attracts long-term investments: The NPS invests contributions in various financial instruments, including equities, which have the potential to provide higher returns in the long run. This can attract long-term investments, which can contribute to the growth and development of the economy.
4. Reduces burden on state finances: The NPS is a defined contribution scheme, which means that the cost of pensions is borne by the individual and not the government. This can reduce the burden on state finances, which can free up resources for other important development projects.
5. Enhances financial literacy: The NPS requires individuals to make informed investment decisions, which can enhance financial literacy among citizens. This can lead to greater financial awareness and help in building a more financially literate society.
In conclusion, the NPS can help in building the nation by promoting savings, financial inclusion, attracting long-term investments, reducing the burden on state finances, and enhancing financial literacy. Therefore, it is important for individuals and employers to consider the NPS as a viable option for retirement planning, which can contribute to the long-term growth and development of the nation.
Posted By Uday India
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