RBI says any reversion to OPS from NPS by States would be fiscally unsustainable

Reserve Bank of India has said that any reversion to the Old Pension Scheme (OPS) from the New Pension Scheme (NPS) by the States would be fiscally unsustainable, though it may result in an immediate fall in their pension outgo. 

It also said that at a time when most of the countries are moving towards defined contribution plans, reverting to OPS by the Indian States will be a major step backward, undermining the benefits of past fiscal reforms. 

The Central Bank yesterday issued the September 2023 issue of its monthly Bulletin. In this bulletin, RBI released a study report “Fiscal Cost of Reverting to the Old Pension Scheme by the Indian States - An Assessment”.

It analyzed



the NPS contribution data of State government employees to estimate the likely fiscal costs that could arise if all State governments revert to the OPS. In this report, the RBI said a short-run reduction in States’ pension outgo on account of reverting to the OPS would be eclipsed by the huge rise in future unfunded pension liabilities in the long run.

Pension burden in case of OPS will outpace the NPS contribution for most of the States by the 2030s, RBI added. Report claims, that under OPS, the estimated actual pension burden will increase by around 4.5 times the estimated pension outgo under the NPS, with the additional OPS burden rising to 0.9 percent of GDP annually by 2060.