Indian Express Editorial Summary

Editorial Topic : Rethinking India’s Pension System

 GS-3 Mains Exam 

Revision Notes

Context

India’s pension system is undergoing significant changes amid a global shift towards welfarism. The proposed Unified Pension Scheme (UPS) aims to provide robust support for retirees, contrasting sharply with earlier systems.

Introduction

India’s pension landscape includes three main schemes:

1. Old Pension Scheme (OPS): A defined benefit plan guaranteeing a fixed pension based on the last drawn salary.
2. New Pension Scheme (NPS): A defined contribution scheme where both employees and the government contribute to a pension fund linked to market performance.
3. Unified Pension Scheme (UPS): A proposed scheme that seeks to balance state involvement with market participation.

Old Pension Scheme (OPS)

• Security: The OPS provided stable, predictable income, insulated from market risks.
• Social Commitment: Reflected a strong government commitment to social security by ensuring guaranteed pensions.
• Retirement Planning: Employees could plan their retirements with confidence due to fixed benefits.

New Pension Scheme (NPS)

• Market Dependency: Introduced a shift from guaranteed pensions to benefits linked to market performance, increasing individual risk.
• Neoliberal Shift: The NPS represented a move towards reduced state involvement, transferring risks to retirees.
• Criticism: The NPS has been criticized for eroding the security previously offered by the OPS, exposing retirees to market fluctuations and economic downturns.

Global Context: Return to Welfarism

• The global retreat from neoliberalism, highlighted by the 2008 financial crisis and the COVID-19 pandemic, has revived calls for stronger social safety nets.
• In India, there is growing momentum for state-supported welfare provisions.

Unified Pension Scheme (UPS)

• Purpose: Aims to provide universal pensions while balancing state and market roles.
• Critique: Early criticisms suggest the UPS offers lower returns than the OPS and exposes retirees to market risks. It requires 25 years of service for a full pension, disadvantaging late joiners.
• Scope: Currently limited to Union government employees, it excludes many public sector workers and informal laborers.

Need for Reform

• State Intervention: The UPS needs mechanisms to protect retirees from market volatility, potentially through a minimum guaranteed pension.
• Government Contribution: The level of government contribution should be reformed to mitigate risks associated with market reliance.
• Inclusivity: Expanding the UPS to cover informal workers is crucial to align with the broader welfarist movement.

Conclusion

The evolution from OPS to NPS, and now to UPS, illustrates the ongoing tension between state-backed welfare and market-driven policies in India. The OPS offered stability, while the NPS introduced uncertainty through market exposure. The current global trend toward welfarism presents an opportunity to restructure India’s pension system, ensuring financial security for retirees. A well-designed UPS could mitigate the shortcomings of the NPS and provide necessary safeguards, thereby fostering a robust welfare system for all citizens.