Centre's panel could recommend Andhra's hybrid pension scheme for states

A panel formed by the Centre to review the pension system of central and state government employees is likely to recommend the Andhra Pradesh government's hybrid Guaranteed Pension Scheme be adopted by other states, the Deccan Herald reported. An official said that the panel is closely examining the hybrid model, which combines the features of both old and new pension schemes.

Why does this story matter?

The panel was established in April after several non-Bharatiya Janata Party (BJP)-ruled states moved back to the Old Pension Scheme (OPS), and employee unions in other states are calling for the same. While the OPS offers a fixed pension, which is 50% of their last drawn salary, the New Pension Scheme (NPS) offers a varying pension as its contributions are invested in the market.

Mix of OPS and NPS to be recommended: Sources

Although the panel, headed by Finance Secretary TV Somanathan, hasn't been given a deadline, it is expected to submit its report to Union Finance Minister Nirmala Sitharaman in July, the report said. An official said, "A few meetings have taken place and it is likely that a scheme that has the best features of both OPS and NPS will be recommended."

Hybrid pension scheme could allow more borrowing

Another official said that if the Centre accepts the recommendation, it can suggest the rest of the states to implement a guaranteed pension scheme. The government can also offer more fiscal and budgetary incentives, such as granting a greater borrowing limit from the bond markets.

OPS to increase state governments' expenditure beyond fiscal target

The official said that the Centre's primary concern is that the OPS will increase the states' expenditure and thus disrupt their fiscal targets, stated to be 3.5% of their gross state domestic products. Notably, Rajasthan, Chhattisgarh, Jharkhand, Punjab, and Himachal Pradesh have reverted to the OPS. The Guaranteed Pension Scheme was proposed in April 2022 and it was cleared in Andhra Pradesh last week.

Hybrid pension scheme to offer same pension as OPS

Just like the OPS, the Guaranteed Pension Scheme offers a fixed pension equalling 50% of the employee's last drawn salary without any deduction. For this, employees need to contribute 10% of their basic pay every month and the state government will make an equal contribution.