A few days back, the Andhra Pradesh State Legislative Assembly made an imperative leap towards bolstering employment stability by approving the Andhra Pradesh Guaranteed Pension System (APGS). According to the APGS/ GPS, state government employees are entitled to a guaranteed monthly pension of 50 per cent of their last drawn basic salary. The Guaranteed Pension System (GPS) is a hybrid model blending the prevailing Contributory Pension System (CPS) and the Old Pension System (OPS). The GPS was unveiled in long-term demand of Andhra Pradesh government employee’s plea for the review of CPS.
According to Finance Minister Buggana Rajendranath, the reversal to OPS is financially not feasible, so GPS is the middle path. The returns from the CPS investment are less than 20 per cent, and the new GPS would be ‘beneficial’ as it provides a guaranteed pension element. As per the GPS, state government employees are entitled to a guaranteed monthly pension of 50 per cent of their last drawn basic salary. The pension amount will be augmented by including dearness relief (DR) on a biannual basis. Even employees with a career of 10 years will be liable to a pension amounting to no less than ₹10,000. In the circumstance of the demise of a pensioner, 60 per cent of the amount will be granted to the surviving legal partner. Apart from this, additional benefits like comprehensive health care packages will be covered under the state government pension scheme.
The Fear of The Fiscal Burden
If the OPS is reinstated, future generations will be expected to encounter tremendous financial hardships and the dilemma of inter-generational equity. If OPS remains in effect, it is estimated that the government will be required to allocate ₹65,234 crore towards pension payments by the year 2041. The pension payments are forecasted to reach ₹3,73,000 crore by the year 2070.
FM Rajendranath stated that the rationality behind refraining from adopting the OPS is the budget deficit exceeding the recommended threshold of 3 per cent, projecting a potential increase to 8 per cent by the year 2050. According to the AP state government statistics, the present expenditure on pension for individuals enrolled in the Old Pension System (OPS) amounts to ₹20,400 crore. However, if all individuals now enrolled in the Contributory Pension Scheme (CPS) were to switch to the old system, the cost would increase to ₹33,546 crore. And moreover, there will be massive retirements in 2045, and if all those were to be included in the OPS system, then the State Exchequer would be an enormous financial burden.
Why is GPS a better option?
The proposed GPS system would entail pensioners receiving 50% of their final drawn salary as pension, in contrast to the current CPS system, which provides 20.3% of their basic wage, while the pensioner’s contribution is 10 per cent of the basic pay as earlier. In comparison, the pension received by a GPS pensioner will be 150% higher compared to that of a CPS pensioner. Particularly, pensioners would avail DA (Dearness Allowance) equivalent to the working employees. This will protect the pensioners from the impact of inflation and dignified livelihood.
For example, if the pensioner’s final income received is ₹1 lakh, the pension granted to the retired employee would amount to ₹50,000. Another interesting fact is that once the employee reaches the age of 82, their monthly pension will reach ₹1.10 lakh as a result of the addition of the Dearness Relief (DR) every six months. Furthermore, the government implemented specific measures to mitigate inflation’s effects within the GPS framework.
AP state Government Employees Association leader Bopparaju Venkateshwarlu said that the GPS has achieved a significant proximity of around 80% in meeting our need to reinstate the Old Pension System (OPS). While employees in the OPS were not required to contribute any money but; those in the GPS are obligated to contribute 10% of their basic salary to the pension fund.
Financial Experts like Atri Mukherjee, Rachit Solanki, Somnath Sharma, R K Sinha, and S R Behera in their research article, explained that if any state reverts to OPS, it would create cumulative fiscal stress in unprecedented levels from medium to long-term as 4.5 times to the New Pension Scheme. Across the world, several developed nations, due to increasing public expenditure, growing life expectancy, evolving demographic profiles and mounting fiscal expenses, has driven to reconsider the pension schemes. Recently, in Rajya Sabha, Prime Minister Narendra Modi cautioned in reference to the five states which adopted the OPS to exercise fiscal prudence in their actions. He remarked, “We, in our policies, have kept national progress in mind and have also addressed the regional aspirations.”
