OPS V/S NPS

Why in news?

• Several Indian states reverting to the Old Pension Scheme (OPS) from the New Pension Scheme (NPS) have been cautioned by an RBI article, which deems this move a “major step backwards” in fiscal management.
• States such as Rajasthan, Chhattisgarh, Jharkhand, Punjab, and Himachal Pradesh have switched to OPS.

About Old Pension Scheme (OPS):

• Under OPS, pension to government employees at the Centre, as well as states, was fixed at 50 per cent of the last drawn basic pay.
• Only government employees are eligible for receiving a pension after retirement.
• Income under the old pension scheme doesn’t attract tax.
• OPS were discontinued in 2003 with effect from April 1, 2004.

About New Pension Scheme (NPS):

• NPS is an easily accessible, low-cost, tax-efficient, flexible and portable retirement savings account.
• Under the NPS, the individual contributes to his retirement account and his employer can also co-contribute to the social security/welfare of the individual.
• NPS is designed on a defined contribution basis wherein the subscriber contributes to his account, there is no defined benefit that would be available at the time of exit from the system and the accumulated wealth depends on the contributions made and the income generated from investment of such wealth.
• Simply put, under the old system, pension was fixed as 50% of the last basic salary drawn, along with other benefits. Hence, the benefit due was defined beforehand. However, in the case of the NPS, the pension benefit is determined by factors such as the amount of contribution made, the age of joining, the type of investment and the income drawn from that investment.
• Moreover, residents as well as non-resident Indians in the age group of 18–60 years can invest in NPS.

PRACTICE QUESTION

UPSC 2017

Who among the following can join the National Pension System (NPS)?

(a) Resident Indian citizens only

(b) Persons of age from 21 to 55 only

(c) All State Government employees joining the services after the date of notification by the respective State Governments

(d) All Central Government employees including those of Armed Forces joining the services on or after 1^st April, 2004

Answer