Logical Reasoning Questions for CLAT | QB Set 64

India’s pension system has experienced substantial changes over the years, transitioning from the Old Pension Scheme (OPS) to the New Pension Scheme (NPS), and now the proposed Unified Pension Scheme (UPS). Each of these frameworks impacts retirees in distinct ways, with the OPS providing more financial security compared to the NPS, which exposes retirees to market fluctuations. The ongoing global shift from neoliberal policies has fueled conversations about welfare and government responsibility, leading to discussions about pension reform in India. The UPS aims to balance market reliance with state responsibility, making it essential to protect the interests of retirees more effectively.

The OPS, before its reform in 2004, guaranteed a defined pension to government employees based on a fixed percentage of their last drawn salary. This system ensured financial stability, allowing employees to retire with the confidence of a predictable income. The government was the sole provider, insulating employees from market risks. However, with the introduction of the NPS, the responsibility shifted towards the individual, with contributions invested in financial markets, exposing retirees to market volatility.

This transition reflects a broader global trend towards reducing state involvement in welfare, pushing individuals towards greater financial risk. The NPS has faced criticism due to the market-driven nature of retirement savings, leading to concerns about retirees’ long-term financial security. The ongoing debates around pension systems also raise questions about the commercialization of welfare and the state’s role in providing social safety nets.

As the world faces economic uncertainties and downturns, there is a growing demand for a return to state-backed welfare systems that offer more security to retirees. In response, the UPS proposal suggests a hybrid approach, aiming to provide a minimum guaranteed pension while also maintaining market participation. This approach seeks to address concerns over retirees’ vulnerability to market risks and aims to build a more balanced system that ensures both individual responsibility and state protection.

1. What is the primary reason for the criticism of the New Pension Scheme (NPS) as mentioned in the passage?

A) It places too much financial responsibility on the state.
B)  It fails to provide a minimum guaranteed pension to all government employees.
C) It exposes retirees to market fluctuations, which may threaten their financial security.
D) It discourages individual financial planning for retirement.

2. Which of the following can be inferred about the Old Pension Scheme (OPS)?

A) It allowed employees to manage their own pension investments.
B) It was entirely state-funded and insulated retirees from market risks.
C) It offered retirees a lower pension than the NPS.
D) It was more market-reliant than the current NPS.

3. Which of the following assumptions underlies the discussion about the proposed Unified Pension Scheme (UPS)?

A) The UPS will remove the individual’s role in contributing to retirement savings.
B) The state should have no role in managing pension funds under the new system.
C)  A hybrid approach that combines state responsibility and market participation is the most effective solution for retirees’ financial security.
D) Market volatility is no longer a concern for retirees under the current pension system.

4. Which of the following statements, if true, would weaken the argument for introducing the Unified Pension Scheme (UPS)?

A) The global economy is expected to stabilize, reducing the risk of market volatility for NPS investments.
B) State-backed pension systems are more expensive and less efficient than market-driven systems.
C) The UPS requires employees to contribute significantly more during their working years than the NPS.
D) Pensioners under the NPS have consistently earned higher returns than those under the OPS.

5. What is the most likely reason for the global shift from state-backed welfare systems to market-driven systems, as implied in the passage?

A) Governments want to increase retirees’ exposure to financial markets.
B) Market-driven pension systems have consistently proven to provide higher returns.
C) Retirees prefer the flexibility of market-driven pension systems.
D) States are trying to reduce their financial burden by shifting responsibility to individuals.

Answers and Explanations:

1. Answer: C) It exposes retirees to market fluctuations, which may threaten their financial security.
   Explanation: The passage mentions that the NPS faces criticism due to its market-driven nature, making retirees vulnerable to financial market risks.
2. Answer: B) It was entirely state-funded and insulated retirees from market risks.
   Explanation: The passage states that the OPS guaranteed a pension based on salary without exposing retirees to market volatility, indicating it was state-backed and insulated.
3. Answer: C) A hybrid approach that combines state responsibility and market participation is the most effective solution for retirees’ financial security.
   Explanation: The passage suggests the UPS is designed to balance individual responsibility with state protection, assuming this hybrid approach is the best way forward.
4. Answer: A) The global economy is expected to stabilize, reducing the risk of market volatility for NPS investments.
   Explanation: If market volatility is no longer a significant risk, the primary concern with the NPS would be mitigated, weakening the argument for a new hybrid system.
5. Answer: D) States are trying to reduce their financial burden by shifting responsibility to individuals.
   Explanation: The passage describes the global trend towards reducing state involvement in welfare, suggesting that governments are shifting responsibility to reduce their financial obligations.