Some states have restored the Old Pension Scheme (OPS) instead of the New Pension Scheme or National Pension Scheme (NPS) for government employees. Both these schemes provide a monthly pension for the Central and State government employees after retirement.
What is the Old Pension Scheme (OPS)?
The Old Pension Scheme (OPS) is a retirement scheme approved by the government. Government employees receive a monthly pension under the OPS. It provides a guaranteed pension for government employees who have completed
Under the OPS, the government pays the entire pension amount to government employees after retirement. Thus, no amount is deducted from employees’ salaries when they are in service.
After retirement, government employees receive the pension amount and the benefit of the revision of Dearness Allowance (DA) twice a year. Since they receive pensions based on their last drawn salary plus DA, their pensions increase when the DA increases twice a year. However, OPS applies only to government employees.
Introduction of the National Pension Scheme (NPS)
However, the National Democratic Alliance (NDA) government discontinued the OPS in 2004 and introduced the National Pension Scheme (NPS) for government employees. The government extended the scope of NPS for all citizens, including self-employed and unorganised workers, in 2009. It is a pension scheme where citizens can contribute an amount every month till 60 years and receive a pension after retirement.
The government launched the NPS as an alternative to the existing OPS to provide citizens with a secure and stable retirement income. However, it is a voluntary scheme administered by the Pension Fund Regulatory and Development Authority (PFRDA).
Under the NPS, government employees can contribute 10% of their basic salary plus Dearness Allowance (DA), and the government contributes 14% of the basic salary plus DA every month. Other citizens can contribute a minimum of Rs.500 monthly towards NPS.
NPS is a market-linked annuity scheme where an individual can invest a regular amount during employment and receive an annuity when they retire. The contributions are consolidated into a pension fund, which invests in a diversified portfolio of government bills, bonds, corporate shares, and debentures.
Professional fund managers regulated by the PFRDA, such as SBI, LIC, UTI, etc., manage the NPS investments. Upon retirement, an individual can withdraw up to 60% of the NPS amount and invest the remaining 40% with any of the ten professional fund managers to receive pension annuities as a monthly pension.
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Old Pension Scheme |
National Pension System |
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Eligible employees |
Only government employees |
Government employees, individual
citizens between 18-60 years and NRIs |
Pension payment basis |
Provides pensions to government
employees based on their last drawn salary plus DA |
Provides pension based on the
investments made in the NPS scheme during their employment |
Pension amount |
50% of the last drawn salary plus
DA or the average earnings in the last 10 months of service, whichever is
more, is given as a pension |
60% lump sum after retirement and
40% invested in annuities for getting a pension |
Contribution |
10% of Basic Pay by Employee to
P.F. a/c. Pension will be paid by employer. |
10% of B.P+D.A by Employee and 14% by Employer. |
Contribution by Empl. Will be with
Dept/Bank/EPF. |
Both Employee &Employer Contribution will be with
Fund Managers. |
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Charges |
--NIL--- |
Charges will be deducted from
contribution by POP,CRA,TRUSTEE BANK,CUSTODIAN, FUND MANAGERS etc., Will be charged for each and every
transaction and for annual maintenance of a/c, securities. From F.Y. 2021-22 Bank will bear
these charges. |
Loans |
Empl. may raise loan on security
of P.F balance, for various needs at any time and repay. |
No Loan facility. . |
Withdrawals |
Can withdraw up to 75% on non
refundable basis for ward’s marriage or to construct house after 25 yrs of
service. |
1.Can withdraw 25% of
employees contribution after minimum 10 years of service. |
Interaction |
Easily interact with his own
employer /H.O |
Has to interact through
computer/Internet with NSDL/PFRDA/FUND MANAGER. Difficult to analyze & choose
Fund Manager as well as Type of scheme to invest. |
Income tax benefits |
No tax benefits |
Employees can claim tax deductions
of up to 1.5 lakh under Section 80C of income tax and up to Rs.50,000 on
other investments under 80CCD (1b) |
Tax on pension amount |
Employee’s contribution to P.F.
a/c is under 80C. P.F. accumulation, Pension,
Commutation are fully exempted from Income Tax |
Employers contribution is added to
Income of the employee, but can be taken as investment apart from 1,50,000
limit under 80CCD(2). On retirement 60% will be paid in
cash and is not taxable..
Other 40% will utilised for
Pension and is tax free. But, Pension is taxable. |
Returns |
Empl. Contribution with 8.5%
interest and Pension related to Basic Pay with D.A is assured for life. |
Both the contributions are
invested in Shares/ Debentures/ Govt. Bond No Guarantee on return. |
For Family |
On the death of an empl., Family
Pension is given to spouse throughout his/her life. |
On the death of Empl. Wealth
accumulated till date is given to the spouse . |