[Answered] Do you think that the old pension scheme is a regressive redistribution mechanism that favours a better-off class? Give reasons in favour of your arguments.

The Old Pension Scheme (OPS) offers inflation- and pay commission-indexed pension payments to retired government employees and their spouses (after the employees’ death) without any contribution from the employees.  Under Old Pension Scheme, employees are not required to contribute to their pensions and pension was guaranteed.

Old pension scheme: a regressive redistribution mechanism:

• TheWorld Inequality Report 2022 estimated the average monthly income of the bottom 50% of the population to be ₹4,468, whereas it is ₹14,669.7 for the middle 40%. The salary of a government employee is higher than the income of more than 90% of the population.
• From 2004 to 2019, the pension expenditure of States registered an average annual growth of 16%. OPS compels governments to compress an already low social sector expenditure, pushing the marginalized into a downward spiral of indigence.
• Many State governments have yet to implement the Seventh pay norms, whereas some States have reportedly not paid arrears of the Sixth pay. Governments at the State level do not have fiscal autonomy.
• Currently, the bottom 50% of the populationbears the burden of indirect taxation six times more than their income. It will push them into destitution and abject poverty.
• OPS will createexpenditure challenges for providing public goods. It will deprive a large population of basic necessities.

Not the case:

• Short-term gains by Government: They save money since they will not have to put the 10 per cent matching contribution towards employee pension funds.
• It will result in higher take-home salaries, since they too will not set aside 10 percent of their basic pay and dearness allowance towards pension funds.
• The pension drawn in New Pension Scheme (NPS) is lower than the OPS.
• NPS is dependent on the market prices of equity/bonds in which the amount is invested. Therefore, a crash in the markets can affect the pensioners.
• OPS is a fixed government expenditure irrespective of an economic slowdown or a stock market crash. This makes it useful in counter-cyclical policy measure during a crisis.

The pension scheme needs to be reformulated in a way that it provides benefits to employees without putting an onerous burden on the employers. A participatory pension for government employees will provide a more egalitarian outcome.