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Old Pension Scheme

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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  • Investments in Tier I account can’t be withdrawn till the retirement age while Tier II account allows premature withdrawal.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  • NPS Tier II account provides more liquidity as the deposits can be withdrawn whenever required.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  • NPS Tier I account funds can’t be withdrawn before you turn 60.

Syllabus: Prelims

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