Reversion to OPS raises fiscal sustainability concerns for 5 states

Shimla: The decision by five states, including Himachal Pradesh, to revert to the Old Pension Scheme (OPS) is projected to create a significant fiscal burden in the coming decades, with pension payouts expected to exceed contributions made under the National Pension Scheme (NPS) by the 2030s. Other states include Punjab, Rajasthan, Chhattisgarh and Jharkhand.Among them, Himachal Pradesh is already facing a severe debt situation, especially after the recent discontinuation of the revenue deficit grant (RDG) by the Central govt, making the shift particularly concerning for its long-term financial health.
Being an unfunded defined-benefit scheme, OPS does not create a dedicated pension corpus, unlike the NPS. These concerns were shared in the Lok Sabha on Monday by Union minister of state for finance Pankaj Chaudhary. Responding to a query from Himachal Pradesh MP Anurag Singh Thakur, the minister said the Centre and the Pension Fund Regulatory and Development Authority (PFRDA) had formally cautioned these states that rising life expectancy and increasing pension commitments could exert heavy pressure on state finances, limit capital expenditure, and create long-term inter-generational fiscal liabilities.In Himachal Pradesh, the Congress govt led by chief minister Sukhvinder Singh Sukhu had implemented OPS in March 2023 in its first cabinet meeting, discontinuing NPS for nearly 1.36 lakh then existing employees and all future recruits. As a result, around Rs 8,104 crore in NPS contributions belonging to over 1.10 lakh state govt employees remains parked with the PFRDA as of Dec 31, 2025. Additionally, the Centre curtailed the state's borrowing capacity by Rs 1,800 crore per annum following the adoption of OPS.The Union minister added that the Comptroller and Auditor General (CAG), in its recent state finance audit reports, highlighted the fiscal implications of reverting to the OPS. According to the reports, OPS is likely to increase committed liabilities over medium and long term, posing risks to adherence to fiscal responsibility and budget management targets and undermining sound budgetary practices at state level. Chaudhary also cited a Reserve Bank of India (RBI) report, State Finance: A Study of Budgets of 2022–23, which noted that any short-term fiscal relief from reverting to the OPS is temporary. By deferring pension costs to the future, states risk accumulating substantial unfunded liabilities, threatening fiscal sustainability in the years ahead.