Will India govt restore Old Pension Scheme? Centre says no proposal under consideration: Here's why

Will Prime Minister Narendra Modi-led India government restore the Old Pension Scheme (OPS)? MP Indra Hang Subba has asked, to which, Minister of State for Finance Pankaj Chaudhary has replied in the Lok Sabha on Monday (10 August). The MoS has stated that Government has no proposal under consideration to restore the Old Pension Scheme due to its unsustainable fiscal liability on the Government exchequer.

Chaudhary further noted that state governments of Rajasthan, Chhattisgarh, Jharkhand, Punjab and Himachal Pradesh have informed the Centre and the Pension Fund Regulatory and Development Authority (PFRDA) about reversion from National Pension System (NPS) to OPS, he said in a written reply in the Lok Sabha.

"There is no provision under PFRDA Act, 2013, read along with PFRDA (Exits and Withdrawals under the National Pension System) Regulations, 2015, and other relevant Regulations, vide which the accumulated corpus of the subscribers viz Government contribution, Employees' contribution towards NPS along with accruals, can be refunded and deposited back to the State Government," he said.

Why Centre is not restoring Old Pension Scheme

The Finance Ministry's position centres on the long-term fiscal liability associated with OPS. Unlike the National Pension System (NPS), which is a defined contribution-based scheme, OPS provides a defined benefit to eligible government employees.

Chaudhary said the government had considered ways to improve pension benefits for Central Government employees covered under NPS. A committee headed by the then Finance Secretary was constituted to examine possible changes after consultations with stakeholders.

The government subsequently introduced the Unified Pension Scheme (UPS) as an option under NPS from April 1, 2025.

OPS vs NPS: What is the difference?

The NPS was introduced for Central Government employees, excluding the armed forces, who joined service on or after January 1, 2004. It operates on a defined contribution model, with contributions from employees and the government invested to build a retirement corpus.

OPS, in contrast, provides a defined pension after retirement and does not operate on the same fund-based contribution structure.

The government has argued that returning to OPS would create a significant and potentially unsustainable liability for public finances.

Chaudhary also pointed to recent State Finance Audit Reports from the Comptroller and Auditor General (CAG), which have highlighted the fiscal implications of States reverting to the old pension system.

Which States have announced OPS return?

Several States have informed the Centre and the Pension Fund Regulatory and Development Authority (PFRDA) about their decision to revert from NPS to OPS.

These include Rajasthan, Chhattisgarh, Jharkhand, Punjab and Himachal Pradesh.

However, the Centre said there is no mechanism under the existing legal framework to simply return the accumulated NPS corpus to States.

"There is no provision under PFRDA Act, 2013, read along with PFRDA (Exits and Withdrawals under the National Pension System) Regulations, 2015, and other relevant Regulations, vide which the accumulated corpus of the subscribers viz Government contribution, Employees' contribution towards NPS along with accruals, can be refunded and deposited back to the State Government," Chaudhary said.

He added that decisions on restoring OPS at the State level fall within the respective State governments' policy discretion.

What is Unified Pension Scheme or UPS?

The Unified Pension Scheme (UPS) was introduced from April 1, 2025, as an option under NPS for Central Government employees covered by the system.

The scheme was designed to improve retirement benefits while retaining a fund-based structure. It provides inflation-linked defined benefits and a minimum assured payout of ₹10,000 per month after retirement, subject to the applicable conditions.

According to Chaudhary, UPS relies on the regular accumulation and investment of contributions made by both employees and the Central Government to finance the assured retirement payout.

The total assets under management under NPS for Central Government employees stood at ₹3.65 lakh crore as of July 7, according to the government.

Government's fiscal deficit and pension burden

The Centre's position on OPS comes against the backdrop of its broader focus on fiscal consolidation.

Pankaj Chaudhary said India's fiscal deficit declined from 6.7 per cent of GDP in 2021-22 to 4.4 per cent in 2025-26 (provisional).

For 2026-27, the Budget estimates the fiscal deficit at ₹16,95,768 crore, or 4.3 per cent of GDP.

The government has said it is pursuing fiscal consolidation while maintaining spending aimed at supporting economic growth and meeting development requirements.

For 2026-27, government borrowings are estimated at ₹16.96 lakh crore, while Effective Capital Expenditure has been budgeted at ₹17.15 lakh crore.