OPS versus NPS: what Government should do? - Part II

December 12, 2022
Devinder Dhingra

Satyam (The Truth)

Continuing from the Part I of this article, before we discuss the solution that can be implemented by the government to address the discrepancies, let us go through in brief the problem the Government faces if it continues the OPS.

The average life in India can be taken as 75 years, which means on average the pension is required to be paid for fifteen to twenty years. Since there is cost involved in both the OPS and NPS, the problem occurs when the government is required to pay the pension for a longer period and also when the inflation is more.

Moreover, since half the pension is required to be paid to the spouse or family after the death of a retired employee, it adds another burden on the government since the duration normally extends.

In the case of NPS, on the other hand, if a retired employee chooses an annuity option in which the pension is available to the spouse after the death of the employee, the same pension amount would be available to the spouse also as long as she or he is alive. And if annuity with return of premium is chosen, the fund shall be available to the family.

Shivam (The Solution)

The optimum solution for the government is to give an option to the employees wherein they should be able to choose the OPS or NPS. Recently, the central government has provided such an option to the employees for the case when an employee dies while in service. This option should be extended to all the employees without any death condition.

It means an employee should decide whether he or she wishes to be in the OPS or the NPS. But having said that, some riders have to be introduced as listed below if the employee opts for the OPS, and some other benefits need to be passed to the ones who opt for the NPS as described in the end:

1. Only for the employees who have served for more than thirty years, the pension amount under OPS should be based on 50% of the last basic salary drawn.
   
   If employee service is between 15 to 20 years, the pension under OPS should be based on 35% of the last basic salary.
   
   If employee service is between 20 to 25 years, the pension under OPS should be based on 40% of the last basic salary.
   
   If employee service is between 25 to 30 years, the pension under OPS should be based on 45% of the last basic salary.
   
   If an employee dies while in service or in the case of disability, the pension under OPS should be the maximum, i.e. 50% of the last basic salary.
2. If an employee is retrenched by the government, the pension under OPS should be 5% more than the above defined caps if the employee has served for less than twenty years, i.e., for a person who has served for eighteen years, he or she should get 40% of basic as the pension instead of 35%.
3. Redefine the VRS (Voluntarily Retirement Scheme). This is an overhead for the government since the pension has to be paid for a longer duration.
   
   Hence, no VRS shall be allowed under OPS before the employee has crossed fifty in age and has put in at least twenty five years of service. The pension amount should also be either 45% or 50% of the basic depending on the number of years the employee has served as per the above-defined caps.
   
   This shall discourage people who opt for the OPS to go for VRS and avail a healthy income. Only the people who have opted for the NPS would be free to retire at any age and after any number of years in service.
   
   Alternatively, no VRS shall be allowed unless someone has opted for the NPS.
4. On a regular basis, the basic salaries in all the pay bands should be adjusted for the prevailing inflation, and once the DA reaches fifty percent, the DA should automatically be merged with the basic salary.
   
   The commission should only work on deciding allowances, pay increments, career progression and correcting any discrepancies.
5. The government should create a pension trust that shall pay the pensions to those who have opted for the OPS. All the government contributions under NPS should be transferred to this trust for all the employees who choose the OPS.
   
   Such a trust can be managed by the NPS department and will not create hassles since money management would be under the government control and on a large scale basis.
6. There should be no GPF under the OPS. Let employees who opt for the OPS continue contributing to the NPS as they are currently doing.
7. For the employees who opt for the NPS, the following benefits need to be added:
   
   (i) No service tax on annuity purchase
   (ii) Medical facilities after retirement on a par with the OPS
   (iii) Since earlier government contributed just ten percent in the NPS and our calculations are based on the 14% contribution, the government need to compensate the shortfall from 2004 till the date 14% contribution was adopted in the form of one-time arrear payment at the time of the retirement or earlier inclusive of average return till date that was available in the NPS.
   (iv) A minimum return guarantee on the NPS funds, on a par with the provident fund rates
   (v) No minimum service condition – If an employee has worked for only twelve years, let the government contribution be passed to him or her after retirement.
   

Read the Part I of this article here

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