Maharashtra finds itself in a tough position following an unreasonable demand by government staff to revert to a guaranteed pension system, or OPS, after having joined service knowing that it’s not part of their benefits package. About 1.7 million government staff have been on strike since March 14, agitating for it. OPS is a fiscally unsustainable guaranteed pension scheme where the monthly pay-out is linked to the last drawn salary. In a rare moment of political consensus 20 years ago, major political parties phased out OPS and also introduced fiscal responsibility legislation at both the Centre and states.
OPS was replaced by the National Pension System, implemented across two different central governments, which functions on the line of EPF for private sector employees. Post-retirement benefits are linked to the returns on the accumulated corpus. Maharashtra in November 2005 under a Congress-NCP government switched to NPS which was to be implemented only for new employees. Given this background, the spate of demands for OPS is unreasonable. Reverting to it will come at the cost of the vast majority not employed by the government as resources are limited. Guaranteed pension pay-outs are a committed liability. Development spending can take place only after meeting it.
Moreover, the reversion to OPS announced by some states is inexplicable as it’s not legally possible for the pension regulator to refund the accumulated corpus of the employees to states. Given this, Maharashtra initially made a poor choice by establishing a panel to study both pension systems and signalling that it’s willing to look for a middle path. However, in the face of blackmail through a strike, the state government’s done well to look for private agencies to fill positions. Reverting to OPS is a path to fiscal ruin.
This piece appeared as an editorial opinion in the print edition of The Times of India.
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