Old Pension Scheme: Government employees have been outraged for a long time since the effect of the New Pension Scheme. Now they see their hopes high on returning to the old ways of the OPS. The people are on the protest, and one after the other Indian States are shifting back to the OPS. The country is swirling with the OPS’s latest news. Learn more about the Old Pension Scheme and its essential difference from the NPS in this article.
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Old Pension Scheme: Overview
Since Punjab announced its return to the OPS after Chattisgarh, the controversy over the benefits and drawbacks of the old and the new pension system has begun once more. Many Indian States have decided to put an end to the NPS, installed during the Atal Bihari Vajpayee government. While the RBI suggests they have a look at their pockets before making such promises. Here is an overview for a quick analysis of the two Pension Schemes.
| Title | Old Pension Scheme |
| Discontinued on | 1st April 2004 |
| Taken over by | New Pension Scheme |
| Regulation | Pension Fund Regulatory and Development Authority (PFRDA) |
What is Old Pension Scheme?
The government of India used to pay a basic monthly allowance to its employees after their retirement. This monthly sum should be 50% of the employee’s last drawn. They would also be entitled to a dearness allowance at their retirement. Neither of the two amounts will be taxable. This rule was only meant for government employees and was replaced by the New System of the NPS on 1st April 2004.
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Old Pension Scheme (OPS) Vs New Pension Scheme (NPS)
Here is a list of significant differences between the Old and the New Pension Schemes:
| OLD PENSION SCHEME | NEW PENSION SCHEME | |
| 1. | Defined Pension. | Contributory Scheme |
| 2. | The government pays a basic monthly allowance upon the retirement of the employee. | 10% of the basic pay was contributed to the investments by the employee, while 14% was to be paid by the employer. |
| 3. | Government employees receive 50% of their last drawn salary. | The government or private employees will receive returns on the market investments. |
| 4. | Payment of Dearness allowance. | 60% tax-free deliverance of the retirement fund. |
| 5. | Not entitled to any tax. | The tax shall be payable on 40% of the lump sum amount, which is mandatory to be invested in the pension. |
| 6. | Only for government employees. | Private employees of the age group 18- 65 years can also join the New Pension Scheme. |
Benefits of OPS and NPS
The OPS is beneficial for the employees. Meanwhile, the NPS is a relief for the government. Apart from these, here are some of the advantages of both.
OPS
- OPS is tax-free and hence the employees can utilise all the money including the dearness allowance without any worry.
- The government pays all money.
- Fixed pension.
NPS
- 60% of the sum is non-taxable.
- Contributray from employee and employer’s end.
- Relief for future taxpayers.
- Reduces the fiscal tension of the state governments.
Old Pension Scheme states in India
The Indian states that have discontinued the NPS and are working with the OPS are:
- Rajasthan
- Jharkhand
- Chhatisgarh
- Punjab
- Himachal Pradesh
Why is RBI worried about OPS?
According to the Reserve Bank of India, the OPS might be a tremendous burden for the states to bear in the forthcoming years. The RBI warned the Indian states in its State Financial Report about the financial risk due to their declining tax revenue over the last few years. Many states are already under heavy debts and are meeting their financial needs somehow via help from the central government.
In the Report, RBI clearly stated that the “pay as you go” scheme implementation is a tax burden for the upcoming generation.
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Frequently Asked Questions
The OPS and NPS both have their respective pros and cons. But, The OPS is beneficial for the employees. Meanwhile, the NPS is a relief for the government’s treasures and the future tax-payers.
New Pension Scheme is a contributory measure which will result in new revenue collection methods and bring relief to future taxpayers.
The new pension scheme started its effect on 1st April 2004.
OPS is a fixed non- taxable monthly plan. The employees do not have to risk any money on the amenities.
RBI’s “Financial report” noted that by OPS execution, the states will be indebted, and future taxpayers will be burdened.
Here is a list of OPS following states in India:
Rajasthan
Jharkhand
Punjab
Chhattisgarh
Himachal Pradesh
