While central government has moved away from the defined benefit system and implemented the defined contributory pension system for new recruits, states are expected to follow suit in the second phase of pension reforms, official sources said on Wednesday.
Pension liabilities alone exceed 25 per cent of the total receipts of 12 states.
Pension, along with salary and interest payments, exceed revenue receipts of some of the states.
To address the problem, a committee under BK Bhattacharya, former chief secretary of Karnataka, was constituted to carry out a study on pension liabilities of state governments and suggest remedial measures.
The committee suggested that state governments should introduce the defined contributory pension scheme as the present defined benefit system was not sustainable.
New recruits would be asked to contribute 10 per cent of their salary while state governments would make matching contribution for the new pension plan, the report said.
The pension contribution was to be tax exempt so as to encourage the new system, it said.
The investment pattern of the pension fund for states would be notified by the PFRDA.
The provident fund contribution should be voluntary once the new pension scheme is in place, the panel said.
Considering the inflated figures on pension liabilities in some states, the committee also asked the states to improve monitoring of the records and its periodic verification.