Amid the political slugfest over some states’ decision to return to the old pension scheme, the Reserve Bank of India has warned that old pension schemes could strain state finances in the future.
“A major risk looming large on the subnational fiscal horizon is the likely reversion to the old pension scheme by some states,” the central bank said.
“The annual saving in fiscal resources that this move entails is short-lived.
In its report on state finances, which was released on Monday, it warned that governments run the risk of accruing unfunded pension liabilities in the future by deferring current spending.
The most recent state to declare the resumption of the previous pension plan is Himachal Pradesh. After Rajasthan and Chhattisgarh, it is the third state governed by the Congress to accomplish so. The Aam Aadmi Party-ruled Punjab is also mulling switching back to the old system, while Jharkhand, where Congress is a partner in the ruling coalition, has done the same.
The states returning to the old system are saying that they are doing it for the sake of social security and welfare of their employees. However, some economists raised concerns over it saying that as states do not build any corpus for the same and the unfunded liability keeps growing with time, this would only invite disaster in the future.
The National Pension Scheme, or NPS for short, was implemented to replace the previous defined benefit plan for federal and state government employees.
