Facts for Prelims (FFP)
Source: HBL
Context: The Andhra Pradesh Guaranteed Pension System Bill, 2023 was passed recently.
- Through this, the Andhra Pradesh government started introducing the New Guaranteed Pension Scheme (GPS) against the criticism of the New Pension Scheme (NPS) and the negative fiscal impact Old Pension Scheme (OPS)
OPS vs. NPS vs. GPS explained using numbers:
Old Pension Scheme (OPS), New Pension Scheme (NPS), and Andhra Pradesh’s Guaranteed Pension Scheme (GPS):
| Aspect | Old Pension Scheme (OPS) | New Pension Scheme (NPS) | Guaranteed Pension Scheme (GPS) |
| Pension Guarantee | Provides fixed pensions | Does not guarantee fixed pensions, and offers returns based on market condition | Guarantees a fixed pension component |
| Contribution | Funded through the budget | Contributions from employees and employers are invested | Employees contribute 10% of their basic salary, matched by the state government |
| Pension Amount | Fixed, based on salary and length of service | Variable, dependent on corpus returns | Fixed at 50% of the last drawn basic salary |
| Fiscal Impact on States | Unsustainable growth in pension liabilities leading to high fiscal deficit | Fiscally sustainable | Any shortfall in the returns from NPS is funded by the government |
Several states, including Chhattisgarh, Rajasthan, Himachal Pradesh, Punjab, and Delhi, have been contemplating a return to OPS. However, a hybrid model like the GPS adopted by Andhra Pradesh could serve as a potential model for other states in the future.
