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Business News/ News / India/  New pension scheme vs old pension scheme. Which is better?
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New pension scheme vs old pension scheme. Which is better?

States like Rajasthan, Chhattisgarh and Jharkhand have already implemented the old pension scheme

States like Rajasthan, Chhattisgarh and Jharkhand have already implemented the old pension scheme. (iStock)Premium
States like Rajasthan, Chhattisgarh and Jharkhand have already implemented the old pension scheme. (iStock)

Several states are reversing back to the old pension scheme (OPS). Recently, the Punjab government said it was considering reverting to OPS, for its employees. If the proposal goes through, Punjab will be the fourth state to have reverted to the OPS. States like Rajasthan, Chhattisgarh and Jharkhand have already implemented the old pension scheme.

Amit Gupta, MD, SAG Infotech explained all that  about the two pension schemes

Old pension scheme (OPS)

  • In the OPS, upon retirement, employees receive 50 percent of their last drawn basic pay plus dearness allowance or their average earnings in the last ten months of service, whichever is more advantageous to them. A ten-year service requirement should be met by the employee. 
  • Under OPS, employees are not required to contribute to their pensions. An incentive for taking on government employment was the guarantee of a pension post-retirement and a family pension. Retirement corpus building was not pressured. OPS has become unsustainable for governments due to rises in life expectancy.

New pension scheme (NPS)

  • In this NPS, those employed by the government contribute 10 percent of their basic salary to NPS, while their employers contribute up to 14 percent. Private sector employees can also participate in the NPS voluntarily, although some rules have changed.
  • With NPS, the customer has much greater flexibility and has a greater sense of control over her fate. A professional pension fund manager can ensure that superior returns and a larger retirement corpus are achieved, regardless of equity or debt.

He added that in contrast to defined benefit plans, NPS is a defined contribution plan. There is no doubt that the guaranteed payout feature in OPS is appealing if you do not have any appetite for risk.

The old pension scheme was discontinued by the BJP-led NDA government in December 2003. The new pension scheme came into effect on April 1, 2004.

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ABOUT THE AUTHOR
Sangeeta Ojha
A business media enthusiast. Writes on personal finance, business and banking.
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Published: 26 Sep 2022, 07:01 AM IST
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