In a written reply to a question asked in the Lok Sabha, the Government ruled out reintroduction of Old Pension Scheme (OPS) for government employees. This scheme, which existed before the introduction of the National Pension System (NPS) in 2004, provided for a defined benefit pension to government employees. A defined benefit is a type of pension, which is fixed and determined with reference to number of years of service and salary. NPS on the other hand is market linked.
NPS was introduced in 2004 and made mandatory for all Central Government employees. It was subsequently extended to the state government employees also and to the private sector. However, some government employee organizations have consistently opposed the NPS since it does not provide a fixed pension amount. There was an expectation from some sections that government may reintroduce OPS for Central Government employees based on this opposition. However the government has firmly laid any speculation in this direction to rest.
The Government cited two reasons for its refusal to reintroduce OPS. First, it pointed to a “rising and unsustainable pension bill" and said that “the Government had made a conscious move to shift from the defined benefit, pay-as-you-go pension scheme to defined contribution pension." Second it said that “the transition also helped in freeing the limited resources of the Government for more productive and socio-economic sectoral development".
The NPS does not provide a guaranteed pension but allows subscribers to invest their pension corpus in government bonds, corporate bonds and equities. In the recently announced Budget, the Government increased its contribution to NPS for Central Government employees from 10% to 14%. It also permitted Central Government employees to invest in NPS Tier 2 and get the benefit of tax deduction under Section 80C. Such an investment will have a lock-in of three years. It also increased the tax-free portion of the NPS corpus on maturity from 40% to 60%. All these measures have made the NPS more attractive to government employees.