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  • 25 November, 2022

  • 6 Min Read

Old Pension Scheme

Old Pension Scheme

In various jurisdictions, a few political parties have pledged to reinstate the Old Pension Scheme.

About The Old Pension Scheme:

  • The plan guarantees a post-retirement income for life.
  • Employees under the previous plan receive a pension based on a pre-established formula that is equal to 50% of the last wage received.
  • Additionally, they benefit from the twice-yearly modification of the Dearness Relief (DR).
  • There was no salary deduction and the compensation is predetermined. Additionally, the General Provident Fund(GPF) was a provision of the OPS
  • Only Indian government personnel have access to GPF. In essence, it permits all government workers to pay a portion of their salaries into the GPF.
  • At the time of retirement, the employee receives the complete amount that has accumulated over the course of their employment.
  • The cost of the pension is covered by the government. The program was abandoned in 2004.


Insufficient Funds for Pensions:

  • The biggest issue was that the pension liability was still unfunded, meaning that there was no corpus created just for pensions that would grow over time and could be used to make payments.
  • Every year, the budget of the Indian government included money for pensions, but there was no clear strategy for how they would be paid in the future.

Additionally unsustainable was the OPS.

  • For starters, as seniors' benefits grew annually, such as salaries of current employees or pensioners who benefited from indexation, or what is known as "dearness relief," pension liabilities would continue to rise.
  • Additionally, improved medical facilities would lead to longer payouts due to an increase in longevity.
  • The Union and state governments now have a significant pension burden as a result of this.

What Efforts Were Being Made to Address Related Issues?

  • The Old Age Social and Income Security (OASIS) initiative was the subject of a report ordered in 1998 by the Union Ministry of Social Justice and Empowerment. The report was submitted in January 2000 by an expert committee.
  • The unorganized sector workers who lacked retirement income security were the main focus of OASIS.
  • According to the OASIS research, investors should consider three different types of funds: growing, balanced, and safe. These funds will be offered by six different fund managers.
  • The remaining amount would be invested in government or business bonds. Each person will have their own retirement account and be expected to contribute at least Rs 500 annually.
  • At least Rs 2 lakh would be taken out of the retirement account after retirement to buy an annuity.
  • For the duration of the person's life, an annuity provider invests the money and pays a fixed monthly income (Rs 1,500 at the time the report was written).

What was the New Pension Scheme's genesis?

  • The New Pension Scheme, which was announced in December 2003, was based on the OASIS assessment.
  • With effect from January 2004, the Central Government implemented the National Pension System (NPS) (except for armed forces).
  • The Union Cabinet approved improvements to the NPS in 2018–19 to benefit central government employees who are covered by the program and to streamline and improve it.
  • The government started the NPS as a strategy to get rid of its pension responsibilities.
  • An article in the news highlighted early 2000s studies that claimed that India's pension debt was out of control.
  • The Central Civil Services (Pension) Rules, 1972 were changed in response to the establishment of NPS.
  • After retirement, people can utilize some of the pension money as a lump sum withdrawal and the remainder to purchase an annuity for a steady income.
  • Implementation: The nation's PFRDA (Pension Fund Regulatory and Development Authority) is responsible for overseeing and implementing NPS.
  • All assets under the NPS are officially owned by the National Pension System Trust (NPST), which was established by PFRDA.


  • The NPS's All-Nationals Model enables all Indian citizens (including NRIs) between the ages of 18 and 70 to sign up.
  • Employees contribute their salaries to their pension corpus as part of a participation program, and the government matches their contributions. The money is subsequently invested through Pension Fund Managers in specified investment plans.
  • Government employees who participate in this NPS contribute 10% of their base pay, and their employers may also contribute up to 14%.
  • According to the Finance Ministry, Central government personnel has the choice of Investment Pattern and Pension Funds (PFs) as of 2019.
  • 40% of the corpus is invested in annuities, which is taxed, and the remaining 60% can be withdrawn tax-free upon retirement.
  • Even private persons are eligible to join the programme.

NPS issues include:

  • In contrast to OPS, the NPS mandates that employees deposit 10% of their base salary as well as the dearness allowance.
  • The pension amount is not fixed, and there is no GPF benefit.
  • The scheme's return-based nature and market linkage are its main drawbacks. Simply said, the reward is unpredictable.

Source: The Financial Express

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