Return to OPS triggers NPS subscriber dip in states, shows NSO data

Only 285,226 new state government employees joined the NPS, as compared to 321,255 subscribers in the corresponding period last year

New subscribers added by state governments under the New Pension Scheme (NPS) declined 11 per cent to a four-year low during April-November 2022. This coincides with the announcement by many states to revert to the Old Pension Scheme (OPS).

According to the latest data released by the National Statistical Office (NSO), only 285,226 new state government employees joined the NPS in April-November, compared to 321,255 subscribers in the corresponding period last year.

The number of new state government subscribers joining the scheme this year is the lowest since FY19. It was from FY19 when the NSO started releasing the monthly NPS data as a measure of employment generation in the formal sector.

Previously, the April-November period of FY21 — during which Covid stuck — had seen a lower number of subscribers (225,652).

Mukesh Anand, assistant professor, National Institute of Public Finance and Policy, said the decline in the number of new subscribers is due to the decision of a few states to revert to the Old Pension Scheme (OPS). It is also because of the decline in recruitment in the public sector.

“The growing clamour among the employees to revert to the OPS is putting strain on the NPS. And, the decision by states like Rajasthan, which announced reversion, is going to lead to a decline in the number of new subscribers,” he added.  

Last year, Rajasthan chief minister Ashok Gehlot announced implementation of the OPS starting April 1, 2022.

Many opposition-ruled states such as Chhattisgarh, Himachal Pradesh, Jharkhand and Punjab have decided to roll out the OPS.

With impending state elections, the Congress in Karnataka has also announced a return to the OPS, if elected to power.

Maharashtra deputy chief minister Devendra Fadanvis, on Wednesday, had said in a public rally, that he was not against the OPS. He will discuss the issue with the state finance department and representatives of government employees.

Of the new subscribers added to the NPS during April-November, those in the 26-35 age group saw a larger decline (11.9 per cent) compared to the 18-25 group (5.3 per cent).

The number of male state government employees under the NPS declined faster (16 per cent) than women employees (3.2 per cent). Also, 19 per cent more young women in the 18-25 age group joined the scheme during April-November.   

The number of new central government subscribers also declined in the April-November period by around 15 per cent to 70,638 from 83,614 during the same period in 2021. This is largely due to lesser recruitment. Whereas, the number of new subscribers in the corporate sector increased by 57 per cent during April-November this year.

“Even though an employee does make contributions for the tenure of their service, the returns they may get are supposed to be market determined and are never guaranteed under the NPS. Under the OPS, employees are provided certainty about their returns. Also, the long-gestation period of the NPS, as it would only start showing effect somewhere after 2035, have made it hard for the policy to sustain its reforms momentum,” Anand added.

Earlier this month, the Reserve Bank of India (RBI) has advised states against reverting to the OPS, holding that annual savings in fiscal resources are “short-lived”.

“By postponing the current expenses to the future, states risk the accumulation of unfunded pension liabilities in the coming years,” the RBI said in its state finances report.

The NPS was designed on a defined contribution basis, wherein the subscriber contributes to his account. The accumulated wealth depends on the contributions made and the income generated from investment of such wealth.

From January 1, 2004, the central and state governments have adopted this scheme for new employees, except for the armed forces. Most of the state governments also adopted NPS for their new employees subsequent to the adoption of NPS by the central government. NPS was extended to the corporate sector on a voluntary basis from 2009.