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How Old Pension Scheme Is Different From NPS As Himachal CM Reiterates Promise




Himachal Pradesh new Chief Minister Sukhwinder Singh Sukhu on Sunday said the state government will implement old pension scheme (OPS) in the first Cabinet meeting. Before this, in the Budget 2022, the Rajasthan government had also announced its plan to re-introduce the OPS for all state government employees from the next financial year.

Chhattisgarh also followed suit. Ahead of the state Assembly polls in early 2021, Tamil Nadu ruling party DMK had also announced its intention to bring back OPS. The old pension scheme was discontinued in 2004 and the NPS was introduced. Here’s the difference between the two:

Old Pension Scheme Vs New Pension Scheme

The government’s old pension scheme, referred to as the Defined Benefit Pension System (DBPS), is based on the last pay drawn by the employee. The NPS is referred as the Defined Contribution Pension System (DCPS), in which the employer and employee contribute to build a pension wealth payable at the time of retirement by way of annuity/lumpsum withdrawal as per norms.

Under the OPS, the employee could withdraw 50 per cent of the last-drawn salary as pension after the retirement.

Under the NPS, a person is allowed to withdraw 60 per cent of the accumulated corpus contributed during his/ her working years at the time of retirement, which is tax-free. The remaining 40 per cent is converted into an annuatised product, which could currently provide the person a pension of 35 per cent of his/ her last-drawn pay.

The NPS is applicable to all employees joining services of the central government, including central autonomous bodies (except Armed Forces) on or after January 1, 2004. Many state governments have also adopted NPS architecture and implemented NPS mandatorily for their employees joining on or after a cut-off date.

In the case of pre-mature exit under the National Pension System, at least 80 per cent of the accumulated pension wealth of the subscriber has to be utilised for purchase of an annuity providing the monthly pension to the subscriber and the balance is paid as a lump sum to the subscriber.

Under the scheme, subscribers can also continue to contribute to the NPS beyond his/ her retirement, up to 70 years of age, and avail additional tax benefit on the contribution.

According to media reports, the central government is planning to make the reform-oriented National Pension System (NPS) more attractive by increasing its annuatised amount for the employees. The pension under the NPS, if government decides to raise the annuatised amount to 60 per cent, could be 45 per cent of the last-drawn salary. The 5 per cent gap can be bridged by the government concerned by contributing a little more to NPS.

The employees will also have the option to withdraw the corpus out of their own contribution entirely at the time of exit, as per reports.

However, 15th Finance Commission chairman N K Singh on Friday (December 9) said it would be “injudicious” for state governments to give up the new pension scheme which was implemented after much deliberations, and such a move would put them under “difficulties and duress”.

The new pension scheme was adopted after extensive debate and deliberations, Singh said on the sidelines of an event organised by industry body CII.

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