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States Returning to Old Pension Scheme

States Returning to Old Pension Scheme –

Old Pension scheme

Rajasthan’s Chief Minister promised the return of the old pension scheme for government employees in a populist budget presented before of the State Assembly election in 2023.

The decision to reverse the new pension scheme sets a poor precedent for other governments to follow. During the present state elections, several parties have made similar promises.

More than three lakh government employees hired after January 1, 2004 will profit from this decision in Chhattisgarh.

Defined Pension Benefit Schemes (DPBS), which guarantee a retirement pension, are experiencing a financial issue around the world.

As the elderly live longer (and retirees live even longer, because to better diets and first-world medical care), and demographic shifts limit the number of young to pay for the elderly, this is an ever-increasing difficulty.

Old Pension Scheme –

Employees of the federal government, state governments, and the commercial sector, as well as self-employed professionals, are eligible for the program. An New Pension Scheme (NPS) account can be opened by any Indian citizen, resident or non-resident, between the ages of 18 and 65.

The government old pension Scheme was phased out on April 1, 2004, and the new National Pension System (NPS Scheme) was adopted.

It had General Provident Fund (GPF) facility and no deduction. from salary for pension of an individual.

On retirement, Old Pension Scheme provided a fixed pension that was guaranteed at 50% of the previous wage. The government pays the entire pension, and in the event of death while serving, the dependent receives a family pension and a job.

New Pension Scheme –

The New Pension Scheme (NPS) was introduced in 2004 and has since been accepted throughout the country, with the exception of West Bengal.

There is no provision for a General Provident Fund (GPF) in New Pension Scheme (NPS). The pay is deducted at a rate of 10% per month.

The government contributes a portion of this, which is removed at 10%, and the remainder is invested in the financial markets. Fixed pension is not guaranteed. It will be completely dependent on the stock market and insurance companies.

The insurance firm will provide the NPS. In the event of a problem, you must contact the insurance carrier.

The individual would be forced to invest at least 40% of his or her pension savings in an annuity at the time of exit. The subscriber would receive a lump payment of the remaining pension funds, which he or she may use in any way they saw fit.

There have been some genuine concerns amongst “NPS employees” first of these is the uncertainty about the pension amount on retirement. Second, employees have expressed concern that market volatility may have an impact on their pensions.

Since its creation, the NPS Scheme has provided returns of around 9%, which is higher than the EPFO, PPF, or fixed deposits.

Difference between old pension scheme and new pension scheme –

The main distinction between the old pension and new pension schemes is that the former was defined, whilst the latter is entirely based on investment returns, accumulations until retirement age, and annuity type and amounts.

The government has implemented a number of measures to protect the interests of NPS subscribers, including a flexible investment pattern, the creation of a regulator, and the development of a low-cost contemporary NPS architecture.

Financial Implication of Withdrawing NPS –

Withdrawing from the New Pension Scheme (NPS) is the most unethical and financially disastrous option.

Rajasthan already has a primary deficit of Rs.29,400 crore for the fiscal year 2022-23, which means it would need to borrow money to cover the interest on its previous borrowings.

Because of populism’s political necessity, the situation is anticipated to deteriorate significantly by 2035, when the ever-increasing pension storm hits with the retirements of individuals who were first employed under the NPS.

Rajasthan will also see a drop in non-tax revenue as the Barmer oilfields near the end of their useful life.

Also Read – Tata IPL 2022

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