What Is Old Pension Scheme And National Pension Scheme?

Unified Pension Scheme: The Modi government on Saturday announced a new Unified Pension Scheme assuring 50 per cent of salary as pension for 23 lakh government employees who joined service under the National Pension Scheme.

The National Pension System is applicable for government employees joining the service after April 1, 2004. It was based on the premise of contribution rather than defined benefit applicable for employees prior to the NPS.

Announcing Cabinet decisions, Information and Broadcasting Minister Ashwini Vaishnaw said the Unified Pension Scheme (UPS) announced that government employees will now be eligible to get 50 per cent of the average basic pay drawn over the last 12 months before the superannuation as pension.

For this full pension or 50 per cent of pay as the pension, he said, the eligibility service length will be 25 years. However, he said, it would be proportionate for a lesser service period up to a minimum of 10 years of service.

NPS subscribers can now opt for the Unified Pension Scheme (UPS), which offers assured pension applicable from the beginning of the next financial year. 

Before the National Pension Scheme, there was a different pension system for government employees, which is now being called the Old Pension Scheme.   

What is Old Pension Scheme?

• The Old Pension Scheme was for government employees.
• The pension amount in OPS is the last drawn salary’s 50 per cent amount. 
• OPS is completely funded by the government.
• One cannot take any tax benefit but the pension amount is tax-free.
• In OPS, the pension amount is not deducted from employee's salary. 
• Since it's government funded, it bears all the expenses. 

What is National Pension Scheme?

• The National Pension Scheme can be availed by anyone. 
• Pension amount can vary depending on the investment choice and fund manager.
• In NPS, the employee has to contribute from their salary. However, in corporates, employers also contribute.
• In NPS, employees can avail tax benefit, however, 40 per cent of the pension amount is taxable when they retired.
• Employees can withdraw 60 per cent of their corpus tax-free on retirement.