Old Pension scheme (OPS) and the New Pension Scheme (NPS) for government employees in India. Several states have decided to switch back to OPS, but experts argue NPS is more sustainable.
Summary:
| OPS | NPS |
|---|---|
| Guaranteed pension based on last drawn salary | Market-linked returns depending on investments |
| No employee contribution needed | Mandatory employee contribution from salary |
| Pension income tax-free | Partly taxable maturity corpus |
Key Features of OPS and NPS
OPS offers fixed pension without employee investments, while NPS follows a defined contribution model with partly taxable returns. OPS pension depends on last drawn basic pay, while NPS pension value is market-linked.
Sustainability Concerns Around OPS
OPS is seen as unsustainable in the long run due to improving life expectancy and rising pension burdens. NPS aims to address this by partial employee investments and non-guaranteed returns.
Tax Implications
A key difference is OPS pension income is tax-free, while NPS allows tax deduction up to Rs 2 lakh on contributions. NPS also offers tax exemption on 60% of maturity corpus.
Eligibility Criteria
OPS is restricted to government employees only. NPS is open to all citizens aged 18-65 years. Private sector employees can also join NPS voluntarily.
Investor Risk Appetite
NPS returns have market risk while OPS offers fixed pension. Risk-averse investors may prefer OPS, while others can opt for NPS for potentially higher but uncertain returns.
Conclusion:
While some states have reverted to OPS, NPS offers greater sustainability through partial employee investments. The tax benefits and potentially higher returns also make it an attractive option.
FAQ:
Q: Who is eligible for OPS?
A: Only government employees are eligible for the old pension scheme (OPS).
Q: What is the contribution in NPS?
A: In NPS, government employees contribute 10% of basic pay and employers contribute 14% towards the pension fund.
Q: Is OPS pension taxable?
A: No, the monthly pension received under OPS is completely tax-free.
Q: What are the tax benefits of NPS?
A: NPS offers tax deduction up to ₹2 lakh under Section 80CCD and 60% of maturity corpus is tax-free.
Q: Who manages NPS funds?
A: Professional Pension Fund Managers appointed by the PFRDA manage investments in NPS across asset classes.
Q: Can private sector employees join NPS?
A: Yes, NPS is open to private employees also to contribute towards their retirement savings.
