With elections for the 182-member Gujarat Assembly to be held in December, the Aam Aadmi Party (AAP) and Congress are attempting to halt the BJP’s 27-year rule in the state with a range of poll promises. One such promise is the restoration of the Old Pension Scheme (OPS).


About Old Pension Scheme (OPS)

  • OPS offers pensions to government employees on the basis of their last drawn salary. 50% of the last drawn salary.
  • The attraction of the Old Pension Scheme or ‘OPS’ lay in its promise of an assured or definedbenefit to the retiree. It was hence described as a ‘Defined Benefit Scheme’.
  • To illustrate, if a government employee’s basic monthly salary at the time of retirement was Rs 10,000, she would be assured of a pension of Rs 5,000.
  • Also, like the salaries of government employees, the monthly pay-outs of pensioners also increased with hikes in dearness allowance or DA announced by the government for serving employees.
  • The OPS was discontinued by the Central government in 2003.


What were the concerns with OPS?

  • The main problem was that the pension liability remained unfunded — that is, there was no corpus specifically for pension, which would grow continuously and could be dipped into for payments.
  • The Government of India budget provided for pensions every year; there was no clear plan on how to pay year after year in the future.
  • The ‘pay-as-you-go’ scheme created inter-generational equity issues — meaning the present generation had to bear the continuously rising burden of pensioners.


About New Pension Scheme (NPS)

  • As a substitute of OPS, the NPS was introduced by the Central government in April, 2004.
  • This pension programme is open to employees from the public, private and even the unorganised sectors except those from the armed forces.
  • The scheme encourages people to invest in a pension account at regular intervals during the course of their employment.
  • After retirement, the subscribers can take out a certain percentage of the corpus.
    • The beneficiary receives the remaining amount as a monthly pension, post retirement.
  • Nodal agency — Pension Fund Regulatory and Development Authority (PFRDA)
  • Eligibility — Any Indian citizen between 18 and 60 years can join NPS. NRIs (Non-Residential Indians) are also eligible to apply for NPS.
  • Permanent Retirement Account Number (PRAN) — Every NPS subscriber is issued a card with 12-digit unique number called Permanent Retirement Account Number or PRAN.
  • Minimum contribution in NPS — The subscriber has to contribute a minimum of Rs. 6,000 in a financial year. If the subscriber fails to contribute the minimum amount, his/her account is frozen by the PFRDA.
  • Management of the money invested in NPS — The money invested in NPS is managed by PFRDA-registered Pension Fund Managers. At the moment, there are eight pension fund managers.


Difference between NPS and OPS

  • The Old Pension Scheme is a pension-oriented scheme. It offers regular pensions to employees during retirement. The pension amount is 50% of the last drawn salary by the employee.
    • Thus, in OPS, the pension amount is constant.
  • On the other hand, the National Pension Scheme is an investment cum pension scheme.
  • NPS contributions are invested in market-linked securities, i.e., equity and debt instruments.
    • Therefore, NPS doesn’t guarantee returns.
  • However, the investments, in NPS, are volatile and hence have the potential to generate significant returns.