{"id":240904,"date":"2023-05-04T19:34:23","date_gmt":"2023-05-04T14:04:23","guid":{"rendered":"https:\/\/blog.forumias.com\/?p=240904"},"modified":"2023-05-04T19:34:23","modified_gmt":"2023-05-04T14:04:23","slug":"reversal-of-ops-guaranteed-pension-is-not-bad-economics","status":"publish","type":"post","link":"https:\/\/forumias.com\/blog\/reversal-of-ops-guaranteed-pension-is-not-bad-economics\/","title":{"rendered":"Reversal of OPS: Guaranteed pension is not bad economics"},"content":{"rendered":"\n

Source<\/strong>: The post is based on the article\u00a0\u201cGuaranteed pension is not bad economics\u201d <\/b>published in the\u00a0Business Standard <\/b>on\u00a04th May 2023<\/b>.<\/p>\n

Syllabus<\/strong>: GS 2 \u2013 mechanisms, laws, institutions and Bodies constituted for the protection and betterment of vulnerable sections.<\/p>\n

Relevance<\/strong>: About the reversal of OPS.<\/p>\n

News<\/strong>: Many State governments are announcing reversion to the old pension scheme (OPS) and some are speculating to do the same. Many economists have said that this is a bad economics. But that is not correct.<\/p>\n

About the National Pension Scheme and OPS<\/h2>\n\n\n\n
Must read: Comparison of National Pension Scheme with Old Pension System \u2013 Explained, pointwise<\/a><\/strong><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

Why do many economists think the reversal of OPS is bad economics?<\/h2>\n

This is because a)<\/strong> the State has to bear the full burden of pensions, b)<\/strong> the scheme will become fiscally unsustainable in the medium to long run, and c)<\/strong> the unsustainable rise in pension allocation can only come at the cost of essential welfare expenditures allocated to the poor and marginalised sections.<\/p>\n\n\n\n
Read more: Schemes like OPS will only exacerbate the gap between richer and poorer states<\/a><\/strong><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

What are the concerns associated with continuing NPS?<\/h2>\n

Those who defend the NPS say that a)<\/strong> The returns in the market do not stay the same, and it may actually be higher and better than the OPS, b)<\/strong> NPS is inflation-covered because, under normal circumstances, the returns are higher than the inflation.<\/p>\n

But they failed to understand that the NPS puts the entire burden of uncertainty on employees alone and not on the employers.<\/p>\n

What can be done to provide OPS without any fiscal constraints?<\/h2>\n

The government should rationalise taxes<\/strong> as these are either negligible or non-existent in India. This can be done by implementing inheritance and wealth taxes.<\/p>\n

Instead of OPS, the government can implement a contributory guaranteed pension scheme (CGPS).<\/strong><\/p>\n

How a CGPS can be implemented without any fiscal constraints?<\/h2>\n
\"contributory
Source: The Hindu<\/figcaption><\/figure>\n

Let’s assume that the employee contribution of CGPS is 10% like NPS and the return is 50% of the last drawn salary like OPS.<\/p>\n

The State pays an additional balance of the difference between the 50% guaranteed pension and the market-determined pension amount. If the market returns are higher, then the State governments might get revenue.<\/p>\n

Based on the chart, one can derive that, a)<\/strong> When the market return is 9%, the State ends up paying the gap, i.e. 28, but when the return is 12%, it gets to pocket the extra 58%, b)<\/strong> Under the CGPS, the burden is only the employer\u2019s contribution part.<\/p>\n

So, it is safe to assume that the CGPS gives guaranteed pensions to the employees without putting the exchequer under additional burden necessarily.<\/p>\n\n\n\n
Read more: Select Central staff can opt for Old Pension Scheme<\/a><\/strong><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

 <\/p>\n","protected":false},"excerpt":{"rendered":"

Source: The post is based on the article\u00a0\u201cGuaranteed pension is not bad economics\u201d published in the\u00a0Business Standard on\u00a04th May 2023. Syllabus: GS 2 \u2013 mechanisms, laws, institutions and Bodies constituted for the protection and betterment of vulnerable sections. Relevance: About the reversal of OPS. News: Many State governments are announcing reversion to the old pension… Continue reading Reversal of OPS: Guaranteed pension is not bad economics<\/span><\/a><\/p>\n","protected":false},"author":10311,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"footnotes":""},"categories":[1230,9],"tags":[10503,212],"class_list":["post-240904","post","type-post","status-publish","format-standard","hentry","category-9-pm-daily-articles","category-public","tag-business-standard","tag-gs-paper-2","entry"],"jetpack_featured_media_url":"","views":{"total":2,"cached_at":"","cached_date":1703190617},"jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/240904","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/users\/10311"}],"replies":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/comments?post=240904"}],"version-history":[{"count":0,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/240904\/revisions"}],"wp:attachment":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/media?parent=240904"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/categories?post=240904"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/tags?post=240904"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}