Pension Schemes In India And Their History Explained: Ops , Nps And Ups

At its very core, the pension system in India began intrinsically for the benefit of civil servants and military personnel, under the British rule. The idea of pension was presented by the British Government for the employees who were in service of their government , dedicating their careers to the British ruled India. 
The purpose of this pension system was to provide a long-run safety blanket to financially protect the employees of the government. The earlier pension system was integrated in 1857 which marked the advent of an organized financial safeguarding for the civil servants post their retirement .

An overview of the three pension systems?

The pension system that got birthed in the British rule was carried forward in the post independent India as well. The Indian government saw it fit to proceed with the expansion of this pension system which carried on to be called as the Old Pension System or OPS.

OPS was the first pension scheme that the Indian government bestowed upon its employees, under this scheme the employees of the government were entitled to a fixed pension depending upon their last salary drawn. What set this scheme apart from others was that it was in its entirety funded by the government.

The OPS ran entirely without any contributions from the employees which later became its very downfall. This system of pension was structured to enact as a financial stability for the retirees but due to the financial pressure that was built overtime upon the government as well as the increased population of the retired government workers, an upgrade was called for.

A new and reformed pension system then came into the picture which was introduced as the National Pension system or NPS. The new pension system was formalized in the year 2004. This reformed system shifted the whole narrative making it transcend from the old to the renewed , more sustainable pension model which was also a step towards a more financially contributory dynamic .

However, with the passing years there emerged the Unified Pension Scheme or UPS as a response to all the conceptual voids that were being seen in the two different pension concepts, it emerged in order to fill in the distorted picture of the pension landscape in India .

The two pension systems were intact for their time but as time passed their days seemed numbered due to the lack of a unanimous approach towards this setting.
The old pension scheme grew unsuitable as of the financial burdening that it caused and with the National Pension System getting introduced in 2004 it became severely clear that there was a need for a third way out .

As the government gained clarity on the need for a more comprehensive way through this muddle to make sure to target a broader social security. The intrinsic idea for the functioning of the UPS was to create a single person framework to cover for both public as well as private sector employees.

The benefit of this system was a simplified orchestration that ensured the employees of all the different domains through the private and public sectors are surely entitled to a similar benefit after retirement. While the NPS introduced a successful contribution to a market associated scheme, it also did leave space for the contrasting sections of employees.

The vision that UPS works around is of bridging the space between the two pension systems in order to standardize pension benefits while delivering mobility to ensure that the workers can take carry with themselves their rights of pension across and beyond different sectors and jobs.

The primary objective of UPS is to be able to create an extra comprehensive and contoured system that promises that all the employees have an easy access to safeguard their retirement savings despite of their belonging to any sector. 

What was the need for a pension system in India?

Not one but there were several factors responsible for needing a system of pension in India. Be it the population density of the aging group, financial security or more, a lot of different situations came to rise that had to be factored in because of which the pension system was brought to light.

As mentioned earlier the aging of the population was one of the factors responsible, with the growth in the life expectancy of people there was a development in the need of people requiring a financial security blanket to support them in their retirement. A well-planned pension system lends a hand in promising that they have sufficient resources after their retirement.

A number of individuals do not have sufficient savings in order to fund themselves in their retirement which makes them dependent on a reliable person ,this is then a crucial part of their survival to always rely on someone else for their economic stability in such an old age.

The change in the workforce dynamic also caused a shift from the traditional joint family systems into a nuclear family system which meant that fewer family members were now relying on the support of each other in their old vital age for financial support. This also played a role in the factored-in  reasons as to why the need for a pension system came to rise.

A carefully planned and structured pension system was also needed to release people from their financial burdens. A well planned pension system would help reduce the burden on the government while also being an encouragement for the individuals to gather and save up for their retirement . Doing that would in return decrease the dependence on the state’s welfare funds for their retirement pension.

All in all we can come to this conclusion that a thorough and carefully structured pension system is a vital asset for the granting of a security  blanket that financially aids the employees of different sectors while looking after the social security and promoting financial wellbeing amongst different sectors employees and retirees in our country . 

Case laws that helped the change

A number of different cases have impacted and helped shape the pension system of India. These cases circled around the involvement of disputes in pension rights, policies of the government and different challenges for the reformation of pension. Mentioning a few of these notable legal cases seems fair to the process of shedding light on the significant influences, that developed the pension policies in the country. 

In the leading case law of D.S. Nakara v. Union of India (1983) which served as one of the landmark cases in pension rights of India, the Supreme Court held that a pension is not a bounty or a form of a gratuitous payment that is made, but it is right of the employee. This case circled around the pensioners, challenging a due date of cut off for the calculations of pension under a government notification. this case set president for the right of equality in pension benefits.

In K.L. Rathee v. Union of India (2001) , a case about the display of disparity in the calculation of pensions amidst pre-and post 1996, retirees after the recommendations of the fifth pay commission were implemented. The petitioner argued against their right to equality being violated under article 14 of the Indian constitution.
The court recognised the unequal pensionary benefits and directed government to revise the pensions of these pre 1996 retirees to bring it in parity with post 1996 retirees, hence ensuring an equal treatment among similarly situated pensioners for the sake of fairness and for maintaining constitutionality.

Comparison between OPS, NPS and UPS 

There are a number of different comparisons that can be drawn out between the three different pension systems of India. However in order to give a clear understanding of it in a  more comprehensive manner,  will breakdown the comparisons between these few factors . 

The old pensions scheme was introduced during the rule of the British in the post independent era of India. The designing of it was primarily in order for the government workers to be given a fixed amount of pension which would be based off of the workers last drawn salary. 
All the employees who joined the services before 1st January 2004 would be eligible for OPS on the other hand the national pension system or the NPS was introduced in the year 2004 .The agenda of NPS was solely to replace OPS for the new government workers, apart from the armed forces which later got extended to all the citizens of India . It was inclusive of private sector. 
The unified pension scheme to this date is still a conceptual theme whose aim is solely to generate a single structure which would encompass both those sectors that is public and private. Offering in turn an additional standard approach towards the pensions.

Under the wing of the old pensions scheme ,the workers never contributed to their pensions. The government took it upon itself to bear the entire financial burden of their pensions. This non contributory nature of the old pension scheme was one of the major reasons why the OPS tended to become a financial burden for the government.
Contrastingly , the national pension system was a contributory scheme in which the employees as well as the employers contributed to the funds of the pension. Government workers contributed 10% from their basic salary and DA meanwhile the government did a contribution of 14%. 
As it was visioned for the united pension scheme , it will be expected to adapt to a contributory model which will be similar to the NPS but will have its differences. However the details of the framework are yet to be formally introduced into the system.

The next point of difference comes with the pension amount and the benefits offered. The old pension scheme offered a fixated amount of pension which was usually 50% of the worker’s last drawn salary in addition to the DA. It is seen as a promising benefit for life and in addition the pension is adjusted to suit the inflation via dearness allowance’s increment.

The national pension system gives out market linked returns while the pension amount resides on the efforts done by the employee and employer in financial terms. Of course, in addition with the market performance. What it means is that the final pension is not assured and it fluctuates. 
At the stage of retirement, the worker may withdraw 60% of his collected corpus while the remaining 40% must be indulged in to purchase an annuity for the regular pension payments. The unified pension scheme focuses on giving out standardised profits across the sectors, most likely inculcating the elasticity of NPS, while assuredly promising a better retirement security to all its workers.

The next point of difference lies in the post retirement withdrawals under the old pension scheme. Their lies no lump sum option of withdrawal. The worker is granted a monthly pension for his entire life after his retirement, the pension that he is given is taxable as is the regular salaried income.
As opposed to this, the national pension system permits its employees to withdraw 60% of its corpus tax-free. When retired. Meanwhile, the leftover 40% is utilised to buy in an annuity that gives a regular pension. The annuity income however, is taxable .
The unified pension scheme on the other hand is also expected to offer a resembling flexibility which allows its employees to withdraw as needed while also making sure of the regular pension payments, even though the details of its specifications, have still not been finalised.

Another important comparison lies in the financial stability that the three pension systems provide. The old pension scheme has been criticised for not being full in its financial sustainability. Ever since it is completely funded by the government, leaving out the contributions of the employees. The increased number of retirees, and the increasing life expectancy have put on a burden of finance on the government’s head.

The national pension system is observed as an extra sustainable alternative because it is seen to cause a shift of responsibilities on the employee through variety of contributions and links of the pension to the market returns.

However, the unified pension scheme is set to aim for an equilibrium amidst the financial sustainability and social security, while also ensuring that the workers across the different sectors are able to contribute towards their pension funds while they are on the receiving end of an adequate retirement fund without the need of an undue weight on the finances of the government.

The factor of risk is another point that strikes a markable difference of comparison between the three. In the old pension scheme, we don’t see any risk for workers ever since the government assures the pension amount despite of the economic conditions or the performance of the market, this assured nature definitely made it popular, which also left it unsustainable.
While we gaze on the other side of the national pension system we see it  brings the employees to the risk of the market. The final amount of pension is based on how well the investments in the pension funds do at the market. This may allow room for growth, but it also allows employees to tread downhill and receive significantly lower returns during the time when the economy down turns.
However, when it comes to the unified pension scheme, it is surely expected of it to negate the risk by joining the flexibility and exposure of the market of NPS, collectively with the elements that offer additional security or assured returns. Even though the very mechanism of it has not yet been defined.

Another point of difference rises with the factor of portability of the three systems of pension. The OPS run low on mobility, we know it is a government specific service, which means that the workers lose their benefits of the pension if they decide to shift to private sector jobs. the national pension system however, is fully portable through the different sectors.The workers can keep at their NPS contributions, no matter if they change sectors , shift between jobs or even become self-employed.
When it comes to the portability of the unified pension scheme, it is expected to polish the mobility more so by generating a single system that would let workers have their pension benefits maintained seamlessly through different careers and different sectors.

The final point of comparison that feels much to be drawn between the three pension systems is the death and survivor benefits. Under the old pension system, if the pensioner is to die, the family pension, which is typically 50% of the pension will be given out to the spouse or any other eligible member of the family.
In the national pension system, they have a different approach to it, if an employee is to pass away before his retirement, then the collected corpus is paid in full to the nominee. After the retirement, the dependency of the pension is majorly based on the plan of chosen annuity, which may or may not give out survivor benefits.
The unified pension scheme has been looked up to be inclusive of collectively both the options which is the family pension option as well as the lump sum withdrawal for nominee, this will make sure that the workers families are financially safeguarded even after their demise.

If we draw an all in all conclusion to all of this, then we may conclude that the old pension scheme gives a sure yet financially unsustainable pension, whereas the national pension system gives out a market link and a contributory model that has some flexibility to it, but also some risk involved. And thirdly, the unified pension scheme is seen to be designed to generate a unified, portable and sustainable structure for all the workers through different sectors, which will be inclusive of the combination of the strengths of both the OPS and the NPS, while also learning from their shortcomings.

Where’s the future direction of pension policy reform headed?

The future direction of the pension policy and refund in India is guided by the need and challenge to address that an aging population with sufficient sustainability and some coverage of the key areas is where the following Indian pension policy and reform was said to evolve from.
With the responsibility of sustainability it becomes clear that the financial burden of giving pensions through schemes like OPS has to make a critical reform. The future policies are likely to be focused on making sure of the fiscal sustainability by being in favour of contributory pension system like the NPS.
However with the government aiming to reduce the liabilities in the long-run by causing a slight shift from completely government funded pensions to the kind if pension system where the employee and employer both can do their own due diligence by contributing and thus in turn making pension schemes more financially free.

As per the current retrospect of India’s workforce and significantly those in the informal sector have run out on any formal pension coverage. The future of reforms are expected to be focused on the extension of pension plans to those of the informal workers, economy participants, and to those who are self-employed. The freshly taken initiative is very likely to give an affordable and flexible pension oriented solutions.
This will be to ensure of even those work outside of traditional employment structures to be having inside access to the benefits of retirement. This would involve the innovations from the digital platforms and mobile based pension solution platforms.

India seems to be moving forward to a unified pension scheme that would allow and standardise pension systems across all the sectors. This will work by creating a single pension framework, the aim of UPS will be to offer mobility and uniformity by proceeding to give its individuals, pension benefits to maintain their, moves between the public and private sectors or shift between their careers. 
This new reformation will certainly bridge the gap that lies between the different categories of employment and make sure that all the employees are covered under the financial security blanket of this cohesive system.

With the shifted focus on the financial inclusivity and literacy in order to increase the participation in the pension schemes like the NPS, there will be a strong impression upon the financial literacy. The government is most likely to invest in the campaigns that stand to educate citizens about how important it is to save up for retirement, the schemes of pension, and the all round benefits of starting an early saving journey.
A sharp awareness that has learnt from the past and seeks to improve from it, significantly amongst the younger employees is sure to be key into maximising enrolment in the field of contributory pension system.

The future of pension formation has always encouraged the development of an innovative pension product that has a great deal to offer like its flexibility and security. This comes inclusive of the inflation linked pensions, an option for a lifetime income and also features like partial withdrawal.
All while diversifying the pension products, the policymaker aimed to target and cater to a significantly different level of income and life stage, which is in making sure that individuals are able to modify their retirement savings and also withdraws to meet with their specifications as needed.

Another important key concern in the dynamic of India’s labour market for employees who regularly shuffle their careers or sectors. The policies in the future will likely hold an enhancement on the mobility or portability of the pension accounts, making sure that the individuals can carry forward their pension benefits across two different employers and even industries.

The national pension system already caters to the portability across the sectors and jobs, and the future formations could be extending. This flexibility world broaden significantly even within the ambit of the unified pension scheme.

The future also looks bright for the public-private partnership. to be effectively managing and expanding the coverage of the whole expanse of future reforms may involve a little something around the lines of public private partnerships, the private sectors institutes that play along financially on a broader rule in watching over the pension funds, investment management, and annuity offering products.
 All while the government take a step back and sets the regulatory structure, a framework that makes sure of the social security measuring out. A collaborative approach like this could lend a helping hand in improving the pension, managing efficiency and bringing out more innovation into the sector.

All in all, we can conclude through this discussion that the direction of the future of pension policy where the reformation is headed towards, is aiming to create a better tomorrow filled with more sustainability, more inclusivity and flexibility in the system that seeks to cover all of the sectors of the different work field while commenting on the financial challenges. 

The shift of focus should be on the expanse of coverage that will lead on to enhancing the portability while leveraging the technology and ensuring that even the most intrinsically vulnerable groups are safeguarded in their years of retirement. The evolving of pension policies will forever play a critical and crucial role in safeguarding India’s growth of elderly population and their interests and benefits regarding the accessibility of the same population to an adequate retirement fund . All while maintaining a fiscal responsibility towards the nation which we as a nation, owe to our nation and the government as an administrator, owes to the retired citizens of this nation.