Last Update: January 09, 2023, 4:50 PM IST
NPS is a pension cum investment scheme launched by the Government of India to provide old age security to the citizens of India.
The old pension scheme was a ‘defined benefit system’. It means that the pension was linked to the last drawn salary of the employee.
The debate on the difference between Old Pension Scheme (OPS) and National Pension System (NPS) (earlier known as New Pension Scheme) is not new and has been in news from time to time.
The ongoing debate between OPS and NPS brings to the fore how Indians are planning their retirement. Amid the uncertainties following the COVID-19 pandemic, there has been a rise in concern for health, as well as concern for a secure retirement to secure old age during the turbulence. In these circumstances, saving money and a good pension has become important for common people. Hence the pension system has taken a central place in financial planning.
Before we get into what OPS is, it is pertinent to know the current pension structure in India. NPS is a pension cum investment scheme launched by the Govt. India To provide old age security to the citizens of India. It was started in January 2004 for government employees. It was later opened to other regions in 2009.
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It provides long term savings opportunities to effectively plan for retirement through safe and regulated market-based returns. The scheme is regulated by the Pension Fund Regulatory and Development Authority (PFRDA). The National Pension System Trust (NPST) set up by PFRDA is the registered owner of all assets under NPS.
Under NPS, the payment of pension after retirement depends on the returns generated by the accumulated corpus during the working years of the employee. Any person who is a subscriber to NPS can claim tax benefit under section 80CCD(1) within the overall limit of Rs. 1.5 lakh under section 80CCC.
In contrast, the old pension scheme was a ‘defined benefit system’. It means that the pension was linked to the last drawn salary of the employee. This is the primary reason why many government employees demand a return to the old system of guaranteed pension.
OPS and NPS: Key Differences
- A retired employee receives 50% of his last drawn pay as monthly pension in OPS. On the other hand, NPS is a contributory pension scheme where the employee and the employer contribute their respective shares.
- OPS is a defined pension scheme of the government. of India, while NPS is a contributory pension scheme.
- Only government employees were eligible to receive pension after retirement in OPS. NPS also covers the private sector.
- The expenditure on OPS is borne by the government. NPS is based on market based returns over the long term.
Meanwhile, PFRDA is reportedly planning to introduce a new product, Minimum Assured Return Scheme (MARS). It aims to attract investors who seek low risk and aim for guaranteed payouts after retirement. This is expected to provide 4-5% guaranteed income on the pension corpus for 10 years. More details are expected to come in the coming months.
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