Five States' Return to Old Pension Scheme Raises Fiscal Alarm for Future Decades
The decision by five Indian states to revert to the Old Pension Scheme (OPS) is projected to create a significant and potentially unsustainable fiscal burden in the coming decades. According to recent parliamentary disclosures, pension payouts under OPS are expected to exceed contributions made under the National Pension Scheme (NPS) by the 2030s, raising serious concerns about long-term financial stability.
States Implementing OPS and Immediate Concerns
The states that have chosen to return to the Old Pension Scheme include Himachal Pradesh, Punjab, Rajasthan, Chhattisgarh, and Jharkhand. Among these, Himachal Pradesh is already facing a particularly severe debt situation. This financial strain has been exacerbated by the recent discontinuation of the revenue deficit grant (RDG) by the Central government, making the shift to OPS especially concerning for the state's long-term fiscal health.
Union Minister of State for Finance Pankaj Chaudhary shared these concerns in the Lok Sabha on Monday. Responding to a query from Himachal Pradesh MP Anurag Singh Thakur, Chaudhary explained that the Centre and the Pension Fund Regulatory and Development Authority (PFRDA) have formally cautioned these states about the impending financial pressures.
Specific Impact on Himachal Pradesh
In Himachal Pradesh, the Congress government led by Chief Minister Sukhvinder Singh Sukhu implemented OPS in March 2023 during its first cabinet meeting. This decision discontinued NPS for nearly 1.36 lakh existing employees and all future recruits. As a direct consequence, approximately Rs 8,104 crore in NPS contributions belonging to over 1.10 lakh state government employees remains parked with the PFRDA as of December 31, 2025.
Furthermore, the Central government has curtailed Himachal Pradesh's borrowing capacity by Rs 1,800 crore per annum following the adoption of OPS. This reduction in borrowing limits adds another layer of financial constraint to a state already grappling with significant debt challenges.
Fundamental Differences Between OPS and NPS
The Old Pension Scheme is an unfunded defined-benefit scheme that does not create a dedicated pension corpus, unlike the National Pension Scheme which operates as a funded defined-contribution system. This fundamental structural difference means that OPS liabilities are not backed by accumulated assets, creating what experts describe as "unfunded liabilities" that future generations will need to address.
Minister Chaudhary emphasized that rising life expectancy and increasing pension commitments under OPS could exert heavy pressure on state finances. This pressure is expected to limit capital expenditure and create long-term inter-generational fiscal liabilities that may compromise sustainable development.
Audit Warnings and Economic Analysis
The Comptroller and Auditor General (CAG), in its recent state finance audit reports, has highlighted the serious fiscal implications of reverting to OPS. According to these reports, OPS is likely to increase committed liabilities over the medium and long term, posing significant risks to adherence to fiscal responsibility and budget management targets. The CAG has warned that this shift could undermine sound budgetary practices at the state level.
Chaudhary also cited a Reserve Bank of India (RBI) report titled "State Finance: A Study of Budgets of 2022–23," which noted that any short-term fiscal relief from reverting to OPS is merely temporary. By deferring pension costs to the future, states risk accumulating substantial unfunded liabilities that threaten fiscal sustainability in the years ahead.
Broader Implications for State Finances
The collective decision by these five states to return to the Old Pension Scheme represents a significant policy shift with far-reaching consequences. As pension commitments grow with increasing life expectancy and expanding government workforces, the financial burden on state exchequers is projected to escalate dramatically.
This situation creates a complex challenge for state governments: balancing immediate political considerations with long-term fiscal responsibility. The warnings from central authorities, audit institutions, and economic analysts suggest that the true cost of returning to OPS may only become fully apparent in the coming decades, potentially constraining future governments' ability to invest in infrastructure, education, healthcare, and other essential public services.
