Is the hope for the Old Pension Scheme (OPS) over with the 8th Pay Commission’s decision? Know the government’s new plan

Old Pension Scheme: A major update has emerged for central government employees and pensioners. With the release of the terms of reference for the 8th Central Pay Commission, it has become virtually certain that the possibility of restoring the Old Pension Scheme (OPS) is over. The government is instead focusing on strengthening the New Pension Scheme (NPS) and the Unified Pension Scheme (UPS) to provide sustainable retirement benefits.

After announcing the formation of the 8th Pay Commission in January this year, the government had invited suggestions from employee organisations on various issues. The restoration of the Old Pension Scheme was one of the key demands from employee representatives. However, the Centre has consistently maintained that no such proposal is under consideration.

What do the 8th Pay Commission’s Terms Indicate?

The Union Cabinet, chaired by Prime Minister Narendra Modi, recently approved the Terms of Reference (ToR) for the 8th Central Pay Commission. A key point in these terms is the mention of the “unfunded cost of non-contributory pension schemes.”

This clearly signals that the government continues to emphasise financial discipline and long-term sustainability and does not intend to revert to an old, non-contributory system like the OPS. While formulating its recommendations, the Commission will have to consider factors like the country’s economic situation, fiscal prudence, development expenditure, and the availability of funds for welfare schemes.

The Three Phases of India’s Pension System

The pension system for government employees in India can be understood in three phases:

• Old Pension Scheme (OPS): This system was applicable to employees appointed before January 1, 2004. Under this, the government paid the entire pension upon retirement without any contribution from the employee. Over time, this system began to put a heavy burden on the government treasury.
• New Pension Scheme (NPS): In January 2004, the central government implemented the NPS. In this scheme, both the employee and the government contribute a portion of the salary. This amount is invested in market-linked funds, and the pension is determined by the returns on that investment. This means the pension is not guaranteed, but the model is sustainable for the government.
• Unified Pension Scheme (UPS): The Centre recently announced a new system called UPS, which will retain the NPS investment structure but provide employees with a minimum guaranteed return and fixed pension benefits. It is seen as a better and more balanced version of the NPS.

The Government’s Final Stance

The central government has repeatedly made it clear that the Old Pension Scheme will not be restored. Despite several states like Rajasthan, Chhattisgarh, Punjab, and Jharkhand reverting to OPS, the Centre remains firm on its stance. The Finance Ministry and the Department of Personnel and Training (DoPT) have stated on multiple occasions that NPS and UPS will remain applicable to central employees.

According to financial experts, if OPS is reinstated, the pension burden on the government exchequer will increase rapidly in the coming years. For the central government, returning to OPS is not fiscally viable. The inclusion of the clause regarding “unfunded cost” in the 8th Pay Commission’s terms is not just a formality but a clear policy message from the government.