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Context

The pension system in India has experienced significant changes over the years, primarily through three major schemes: the Old Pension Scheme (OPS), the New Pension Scheme (NPS), and the proposed Unified Pension Scheme (UPS). Each of these schemes has a distinct impact on retirees, with the OPS generally regarded as a more secure option compared to the NPS, which is influenced by fluctuating market conditions. As global trends move away from neoliberal policies, the discussion around welfarism is gaining momentum. In this context, the UPS needs substantial adjustments to ensure it effectively meets the needs of retirees.

A Shift Towards Greater Individual Risk

• Before 2004, the Old Pension Scheme (OPS) provided government employees with a defined benefit pension, ensuring a fixed amount based on their last drawn salary.
  • In this system, the government fully managed pension disbursements, offering stability and protecting retirees from financial market risks. The reliance on a predetermined percentage of the last salary allowed employees to plan their retirements with confidence, knowing they would receive a guaranteed income throughout their post-retirement years.
  • The OPS exemplified the government's commitment to social security by eliminating market influences and providing assured pensions.
• In 2004, the Government of India replaced the OPS with the New Pension Scheme (NPS), marking a transition from a defined-benefit model to a defined-contribution model.
  • Under the NPS, both employees and the government contribute to a pension fund that is invested in financial markets. Consequently, the pension payouts are tied to the performance of these investments, exposing retirees' incomes to the volatility of market fluctuations.
  • This change reflects a neoliberal trend aimed at reducing state involvement in welfare and shifting risk onto individuals. As a result, retirees became vulnerable to market instabilities, with their financial futures dependent on unpredictable economic conditions.
• The NPS has faced criticism for undermining the security that the OPS once provided, particularly during economic downturns when retirees may experience diminished returns, jeopardizing their financial stability. This market-oriented pension model has also raised broader concerns about the commercialization of public welfare programs and the diminishing sense of social responsibility from the state.

A Shift Back to Welfarism

• Globally, the era of neoliberalism that has dominated economic policy for decades is beginning to recede.
  •  The 2008 financial crisis revealed the dangers of excessive reliance on the market, sparking calls for stronger social safety nets and a revival of welfarism.
  • The COVID-19 pandemic further intensified these demands, prompting governments around the world to intervene in unprecedented ways to safeguard the health and livelihoods of their citizens. In India, a similar shift is occurring, with growing calls for the reinstatement of state-backed welfare provisions.
• In this context, the proposed Unified Pension Scheme (UPS) by the Narendra Modi government seeks to offer universal pensions while balancing state involvement and market engagement. However, the government's pivot, as highlighted by the Opposition, aims to address the shortcomings of the New Pension Scheme (NPS), yet the UPS is still in its early stages and requires substantial adjustments before it can be considered a viable alternative to the NPS.
• Critics have noted that while the UPS promises retirement payouts, it offers lower returns than the OPS and exposes retirees to the risks associated with unpredictable market-based assets.
  • Additionally, the requirement of 25 years of service for a full pension disadvantages latecomers, and concerns about potential underfunding raise fears of future delays or depletion of pension funds.
  • Furthermore, the scheme currently only covers Union government employees, excluding many public sector workers such as teachers, which may discourage future pay commissions.
• A key area needing attention is the enhancement of state intervention to protect retirees from market vulnerabilities. Although the UPS proposes a universal framework, its design should include safeguards against market fluctuations, potentially by offering a minimum guaranteed pension similar to the OPS.

The Need for Reform in Government Contribution

• Another critical area for reform is the level of government contribution within the UPS. This hybrid model may not fully alleviate the risks associated with market dependence and could fall short of providing a balanced pension system.
  • Inclusivity is essential; the UPS must extend its coverage to all sectors, particularly the informal labor market, which currently lacks sufficient pension support.
  • To align with the global shift towards welfarism, the UPS should aim to secure pension benefits for all citizens, not just government employees.
• The contrast between the OPS, NPS, and UPS highlights the ongoing tension between state-supported welfare and market-oriented policies in India's pension landscape.
  • While the OPS offered stable and predictable pension income, the NPS transferred retirees’ financial security into the unpredictable world of market investments, introducing uncertainties and vulnerabilities.
  • As the world sees a retreat from neoliberalism and a tentative return to welfarism, there is an opportunity to reevaluate India’s pension system and achieve a better balance between state responsibility and market engagement.
  • If properly restructured, the UPS could serve as a vital mechanism for safeguarding retirees' financial security and addressing the flaws of the NPS, ensuring that India's retirees are supported by a solid welfare framework rather than left vulnerable to market fluctuations.

Conclusion

India's pension system requires urgent reform to balance state involvement and market risks. The proposed Unified Pension Scheme (UPS) offers potential but needs significant adjustments to ensure comprehensive coverage and financial security for all retirees, aligning with the global shift towards stronger welfarism.

Source: The Hindu