An opportunity to rethink India’s pension system

The pension system in India is under scrutiny as discussions around the proposed Unified Pension Scheme (UPS) gain momentum. This comes amid a broader global retreat from neoliberal policies and a resurgence of calls for welfarism, highlighting the need for effective pension security for retirees.

Transition from OPS to NPS

• Old Pension Scheme (OPS): The OPS, operational before 2004, guaranteed a defined benefit pension based on the last drawn salary, ensuring financial security and stability for retirees, insulated from market fluctuations.
• New Pension Scheme (NPS): Introduced in 2004, the NPS shifted to a defined-contribution model where both employees and the government contribute to a market-linked pension fund, exposing retirees to market volatility and diminishing state responsibility.
• Criticism of NPS: The NPS has faced backlash for leaving retirees vulnerable to economic downturns, eroding the security previously offered by the OPS, and reflecting a neoliberal trend that prioritizes market forces over social welfare.

Return to Welfarism

• Global Context: The retreat from neoliberalism post-2008 financial crisis has highlighted the need for stronger social safety nets, with the COVID-19 pandemic further amplifying demands for enhanced state intervention in welfare policies.
• Unified Pension Scheme (UPS): The UPS aims to provide universal pensions while balancing state involvement and market participation, yet it remains in preliminary stages requiring significant adjustments.
• Critique of UPS: The UPS may promise retirement payouts but offers lower returns than the OPS, exposes retirees to market risks, and has limitations like requiring 25 years of service for a full pension, disadvantaging late entrants.

Need for Structural Reforms

• Government Contribution: The UPS's hybrid model necessitates a re-evaluation of government contributions to effectively mitigate market risks and establish a balanced pension system.
• Inclusivity of UPS: The scheme currently excludes many public sector workers, such as teachers, and must extend its coverage to the informal workforce, ensuring pension security for all citizens, not just government employees.
• Welfare System Rethink: The evolving pension landscape provides an opportunity to reassess India's pension system, aiming for a balanced approach that protects retirees from market forces while enhancing state responsibility in welfare provisions.

Practice Question

Q. Critically analyze the implications of transitioning from the Old Pension Scheme (OPS) to the New Pension Scheme (NPS) in India, and evaluate the potential of the proposed Unified Pension Scheme (UPS) in addressing the challenges faced by retirees in the context of global shifts towards welfarism.