Old Pension Scheme
The old pension scheme was discontinued on April 1, 2004, and replaced with the National Pension Scheme. In the old pension regime, pension was 50% of the last drawn salary of the employee and the entire amount was paid by the government. The national pension scheme (NPS) or contributory pension scheme is effective for the employees who joined on or after April 1, 2004. Under this scheme, the employees contribute 10 per cent of their salary towards pension and the state government contributes 14 per cent. The amount is then deposited with PFRDA where it is invested.
Latest Updates for Old Pension Scheme
- Reintroduction of Old Pension Scheme: Rajya Sabha QA
- Scrapping NPS and Restoring Old Pension Scheme: National Convention – NJCA
- Joint Forum for Restoration of Old Pension Scheme
- Communication regarding Old Pension Scheme for Central Government Employees : Rajya Sabha QA
- Bring back Old Pension Scheme: NCJCM writes to Cabinet Secretary
What is OPS and NPS?
On 1 April 2004, the central government, under Prime Minister Atal Bihari Vajpayee, discontinued the Old Pension Scheme and introduced the New Pension Scheme.
In the old regime, pension was 50 per cent of the last drawn salary of the employee and the entire amount was paid by the government.
The New Pension Scheme (NPS), launched as a way to reduce pension liabilities, allows subscribers (government employees) to decide where they want to invest their money by contributing regularly in a pension account throughout their career. At the age of retirement (60 years), you can withdraw 60 per cent of the proceeds as lump sum. This sum was taxable earlier but is now tax-free. Pensioners can use the rest to buy an annuity for a regular income.
Under the NPS, effective for employees who joined on or after 1 April 2004, the employees contribute 10 per cent of their salary towards pension and the state government contributes 14 per cent. The amount is then deposited with Pension Fund Regulatory & Development Authority (PFRDA) where it is invested.
The key differences between OPS and NPS are that NPS invests employees’ contributions over the length of their careers in market securities such as equities. “Thus, the NPS generates market-linked returns without any assurance of returns, which the OPS provides by basing the monthly pension on the last salary drawn by the employee. NPS provides a pension fund on retirement which is 60 per cent tax-free on redemption while the rest needs to be invested in annuity which is fully taxable. Income from OPS is not taxed. Lastly, OPS may require governments to revisit their fiscal priorities while NPS was meant to ease that very requirement,