Old Pension Scheme
- The majority view on the Old Pension Scheme (OPS), at least in opinion spaces, is that it’s detrimental to public finances.
What is OPS?
- The Old Pension Scheme ensures that a retired government employee gets access to life-long stable income after retirement.
- Under the old pension system the retired government employees receive 50 per cent of their last drawn salary plus dearness allowance as pension every month.
- Moreover, they also get the benefits of revision in dearness allowance (DA) twice every year.
- The payout under OPS doesn’t require a deduction from salary during service years.
Benefits of OPS:
- Ensures life-long stable income in the form of monthly pension
- Doesn’t need deductions from salary, thus, reducing the burden on employees.
- Pension income under OPS doesn’t attract any tax.
- Voluntary contributions to GPS can be used to create retirement corpus.
- Income received after retirement is tax-free.
- The old pension scheme is open only to the retired government employees.
What is the National Pension System (NPS)?
- The National Pension System, which was introduced in 2004, is open to both government and private sector employees.
- The scheme was initially only available for government employees but in 2009 it was expanded to include any citizen in the age groups of 18 years to 60 years.
- The Pension Fund Regulatory and Development Authority (PFRDA) has been implementing and regulating the NPS.
- The National Pension System is divided into Tier I and Tier II accounts.
- Investments in Tier I account can’t be withdrawn till the retirement age while Tier II account allows premature withdrawal.
Benefits of NPS:
- Tax benefits of up to Rs 1.5 lakhs can be availed under the Section 80 CCD (1) of the Income Tax Act.
- Provides benefits to both government and non-government employees.
- NPS Tier II account provides more liquidity as the deposits can be withdrawn whenever required.
Disadvantages of National Pension System:
- Requires a deduction from salary.
- Income received after retirement is taxable.
- NPS Tier I account funds can’t be withdrawn before you turn 60.