OPS vs NPS: Difference Between Old Pension Scheme and New Pension Scheme, Advantage & Disadvantage

Some states have restored the Old Pension Scheme (OPS) instead of the New Pension Scheme or National Pension Scheme (NPS) for government employees. Both these schemes provide a monthly pension for the Central and State government employees after retirement. 

What is the Old Pension Scheme (OPS)?

The Old Pension Scheme (OPS) is a retirement scheme approved by the government. Government employees receive a monthly pension under the OPS. It provides a guaranteed pension for government employees who have completed

Under the OPS, the government pays the entire pension amount to government employees after retirement. Thus, no amount is deducted from employees’ salaries when they are in service.

After retirement, government employees receive the pension amount and the benefit of the revision of Dearness Allowance (DA) twice a year. Since they receive pensions based on their last drawn salary plus DA, their pensions increase when the DA increases twice a year. However, OPS applies only to government employees. 

Introduction of the National Pension Scheme (NPS) 

However, the National Democratic Alliance (NDA) government discontinued the OPS in 2004 and introduced the National Pension Scheme (NPS) for government employees. The government extended the scope of NPS for all citizens, including self-employed and unorganised workers, in 2009. It is a pension scheme where citizens can contribute an amount every month till 60 years and receive a pension after retirement.

The government launched the NPS as an alternative to the existing OPS to provide citizens with a secure and stable retirement income. However, it is a voluntary scheme administered by the Pension Fund Regulatory and Development Authority (PFRDA).

Under the NPS, government employees can contribute 10% of their basic salary plus Dearness Allowance (DA), and the government contributes 14% of the basic salary plus DA every month. Other citizens can contribute a minimum of Rs.500 monthly towards NPS.

NPS is a market-linked annuity scheme where an individual can invest a regular amount during employment and receive an annuity when they retire. The contributions are consolidated into a pension fund, which invests in a diversified portfolio of government bills, bonds, corporate shares, and debentures.

Professional fund managers regulated by the PFRDA, such as SBI, LIC, UTI, etc., manage the NPS investments. Upon retirement, an individual can withdraw up to 60% of the NPS amount and invest the remaining 40% with any of the ten professional fund managers to receive pension annuities as a monthly pension.

Employees who can opt for the Old Pension Scheme

When the government introduced NPS, all employees who joined service after 2014 were covered under the NPS, and they were not eligible to get a pension under OPS after their retirement.

However, in February 2023, the Department of Pension and Pensioner’s Welfare (DoPPW) provided Central Government employees with a one-time option to choose to get a pension under the OPS.

The Central Government civil employees who fulfil the below conditions can choose the OPS:

• Appointed for a vacant post advertised or notified before the NPS notification date, i.e. 22.12.2003

• Joined service on or after 01.01.2004

• Covered under the NPS

However, such eligible government employees should file for getting pension under the OPS before 31.08.2023. The employees who do not choose the one-time option within 31.08.2023 will continue to be covered under the NPS.

Old Pension Scheme advantages and disadvantages

Advantages of the OPS:

• It assures life-long income post-retirement.

• Employees get a pension under a predetermined formula, i.e. 50% of the last drawn basic salary plus DA or the average earnings in the last ten months of service, whichever is more.

• Employee’s pension increases with the revision of DA twice a year.

• There was no deduction from the salary of employees for pension payments.

• The government bears the expenditure incurred on a pension.

• It provides guaranteed, inflation and pay commission-indexed pension payments to retired government employees and their spouses.

Disadvantages of the OPS:

• It is a massive pension burden on the Central and State government.

• There is no corpus created for pensions which could grow continuously and reduce the government's liability for pension payments.

• It is unsustainable since the pension liabilities would keep increasing every year.

• Since life expectancy has increased due to better health facilities, resulting in longevity, the government has to bear the extended pension payouts.

National Pension Scheme advantages and disadvantages

Advantages of NPS:

• Employees can withdraw 60% of the corpus upon retirement, which is tax-free.

• Employees have more flexibility and control over NPS investments since they can choose the professional fund manager with the highest return.

• It provides higher returns regardless of equity or debt since qualified professional fund managers manage the NPS investments.

• A tax deduction is available for NPS contributions made every year during employment.

• PFRDA regulates NPS with transparent investment norms, regular performance reviews and monitoring of fund managers by NPS trust, making it a safe investment option.

• NPS accounts can be operated and managed online.

• Employees can withdraw the NPS contributions before retirement. They can withdraw a certain amount after ten years of opening the account, and three withdrawals are allowed till they reach 60 years.

Disadvantages of NPS:

• Employees should contribute 10% of their basic salary plus DA towards their monthly pension.

• The pension amount is not fixed since it is paid based on the return on investments made in market-linked instruments managed by professional fund managers.

• Many people are unaware of financial terms, such as equities, debt, securities, etc. Hence, they may fail to choose the best NPS fund manager for their investments. 

How is NPS better than the Old Pension Scheme?

The OPS provides a fixed amount of pension every month for government employees. They also get the benefit of increases in DA twice a year. For example, if a government employee’s basic monthly salary plus DA at the time of retirement is Rs.10,000, he would be assured of a pension of Rs.5,000 every month. Additionally, the monthly pension increases when the DA increases. If there is an increase of 4% in DA, the monthly pension will increase to Rs.5,200 (An increase of 4% is calculated upon the pension amount, i.e. Rs.5,000). 

However, under the NPS, the pension amount is determined by various factors, such as the amount of contribution, age of joining, type of investment and the income drawn from the investment.

For example, if an employee is 35 and the retirement age is 60, the total investing period will be 25 years. When his basic salary and DA is Rs.10,000, the monthly contribution towards NPS will be Rs.2,400 (10% employee contribution on Rs.10,000, i.e. Rs.1,000 + 14% government contribution on 10,000, i.e. 1,400). 

When the employee becomes 60 years, he will receive a monthly pension of Rs.4,595 when he invests 40% of the accumulated contributions in annuities. He will get the 60% of the accumulated contributions as a lump sum, i.e. Rs.13,78,607. Thus, he will get a monthly pension and a lump sum, which he can re-invest. When he invests 60% of the accumulated contributions in annuities, he will get a monthly pension of Rs.6,893 and get Rs.9,19,071 as a lump sum. 

Raising equity markets favour NPS over the long term. It benefits employees and relieves the government of the burden of pension payout. It gives a pension amount and retirement lump sum as against pension in the OPS. Though OPS looks convenient for employees, experts state that NPS is sustainable for the economy as the government bears the entire risk of inflation and longevity under the OPS.

Difference between Old Pension Scheme(OPS) and NPS

	Old Pension Scheme	National Pension System
Eligible employees	Only government employees	Government employees, individual citizens between 18-60 years and NRIs
Pension payment basis	Provides pensions to government employees based on their last drawn salary plus DA	Provides pension based on the investments made in the NPS scheme during their employment
Pension amount	50% of the last drawn salary plus DA or the average earnings in the last 10 months of service, whichever is more, is given as a pension	60% lump sum after retirement and 40% invested in annuities for getting a pension
Contribution	10% of Basic Pay by Employee to P.F. a/c. Pension will be paid by employer.	10% of B.P+D.A by Employee and 14% by Employer.
	Contribution by Empl. Will be with Dept/Bank/EPF.	Both Employee &Employer  Contribution will be with Fund Managers.
Charges	--NIL---	Charges will be deducted from contribution by POP,CRA,TRUSTEE BANK,CUSTODIAN, FUND MANAGERS etc., Will be charged for each and every transaction and for annual maintenance of a/c, securities. From F.Y. 2021-22 Bank will bear these charges.
Loans	Empl. may raise loan on security of P.F balance, for various needs at any time and repay.	No Loan facility. .
Withdrawals	Can withdraw up to 75% on non refundable basis for ward’s marriage or to construct house after 25 yrs of service.	1.Can withdraw 25% of employees contribution after minimum 10 years of service. Purpose: Marriage of ward, Education expenses for ward, construction of House , Medical Expenses for selected deceases.. 2.In case of VRS,etc., 80% of accumulated wealth will be used for pension/annuity. Only 20% will be given in cash.
Interaction	Easily interact with his own employer /H.O	Has to interact through computer/Internet with NSDL/PFRDA/FUND MANAGER. Difficult to analyze & choose Fund Manager as well as Type of scheme to invest.
Income tax benefits	No tax benefits	Employees can claim tax deductions of up to 1.5 lakh under Section 80C of income tax and up to Rs.50,000 on other investments under 80CCD (1b)
Tax on pension amount	Employee’s contribution to P.F. a/c is under 80C. P.F. accumulation, Pension, Commutation are fully exempted from Income Tax	Employers contribution is added to Income of the employee, but can be taken as investment apart from 1,50,000 limit under 80CCD(2). On retirement 60% will be paid in cash and is not taxable..   Other 40% will utilised for Pension and is tax free. But, Pension is taxable.
Returns	Empl. Contribution with 8.5% interest and Pension related to Basic Pay with D.A is assured for life.	Both the contributions are invested in Shares/ Debentures/ Govt. Bond No Guarantee on  return.
For Family	On the death of an empl., Family Pension is given to spouse throughout his/her life.	On the death of Empl. Wealth accumulated till date is given to the spouse .

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Gratuity/Pension/NPS for Bankers/Bank Employees and other Government Employees

 

Gratuity:

 

	Gratuity Under Award	Gratuity under Act
Eligibility	a) The death of the employee, b) Employee becoming physically or mentally incapable of further service, c) Termination of Service d) Retirement on superannuation and e) On voluntary retirement or resignation after 10 years of continuous service	A) Retirement on superannuation B) Resignation after 5 years of service C) Death and D) Disablement
Formula for calculation	One month pay for each completed years of service (max) 15 months pay + 1/2 month pay for each year beyond 30 years of service.   *Pay = Basic Pay + Special Pay + Officiating Pay + PQP+ increment component of FPP. * Based on Average of the last 12 months. * Service of more than 6 months will be taken as one year.	15 days wages X No of years of Service  i/e., 15/26 X Wages X No of years of service.   *Wages = Basic Pay + DA + Spl. pay + PQP +Officiating Pay + increment component of FPP *One day Wage = Monthly wage divided by 26 * Based on Last drawn Salary * Service of more than 6 months will be taken as one year
Maximum Amount Payable	No ceiling	Max. Rs.20,00,000
Tax Exemption	Exemption up to Rs.20,00,000	Exemption up to Rs.20,00,000

 

 

Pension Scheme (Old) Highlights:
(to those who have joined before 01/04/2010)

 

1. Pension will be payable on retirement to permanent employees who have put in minimum of 10 years of service (on superannuation).

2. Pension is to be paid on 50% of the average of the pay drawn by an employee during the last 10 months of his service in the bank.
Here Pay refers to the Basic pay + Special Pay + PQP + Increment component of FPP (Basic Pension)

3. He is allowed to commute up to a maximum of 1/3 of his Pension and take a lump sum payment on the commutation value.

4. Dearness Relief is payable on Basic Pension. DA will be revised every half year according to rise and fall of Consumer Price Index.

5. Dearness Relief is payable on the full pension including the commuted value.

6. Completed service of 33 years will qualify for full pension. If the service is less than 33 years, proportionate pension shall be paid.

7. In case of an employee voluntarily retiring on completion of 20 years of actual service, his qualifying service shall be increased by a period not exceeding 5 years, so however, that the total qualifying service of such employee shall not in any case exceed thirty three years and also shall not take him beyond the date of superannuation.

8. For those employees who are retiring on superannuation, the notional service of 5 years shall not be added.

9. The commutation factor ( varies as per age) for a retiring employee who has completed 60 years will be 9.81.

10 Formula for calculating Commutation Value=
      1/3 of Basic Pension X 12 X Commutation factor.

Example:
If an employee gets a Pension of Rs.15000, he may commute a maximum of Rs.5000 and the commutation value will be =Rs.5000 x 12x 9.81= Rs. 5,88,600

 

Family Pension:  Payable after the death of Employee while in service or after retirement.

 

Scale of Pay per month	Amount of Monthly Family Pension
Upto Rs. 11,100	30% of the ‘pay’ subject to Minimum of Rs.2,785 per month
Rs. 11,101 to Rs.22,200	20% of the ‘pay’ subject to Minimum of Rs.3,422 per month
Above Rs. 22,200	15% of the ‘pay’ subject to Minimum of Rs.4,448 per month and Maximum of Rs.9,284

 

Details of National Pension Scheme(NPS) (to those who have joined after 01/04/2010)

 

NPS (National Pension System) is a defined contribution based Pension Scheme launched by Government of India .

It is applicable to Bank Employees who joined Banking industry on or after 01.04.2010.

It is based on a unique Permanent Retirement Account Number (PRAN) which is allotted to each Subscriber upon joining NPS.

PFRDA has now launched a separate model to provide NPS to the employees of corporate entities, including PSUs (including Banks). This model is titled "NPS - Corporate Sector Model".

On successful registration, a PRAN (Permanent Retirement Account Number) will be allotted to the subscriber. A PRAN Kit containing PRAN card, Subscriber details (referred as Subscriber Master List) and an information booklet is sent to the subscriber's registered address. The T-Pin and I-Pin are sent separately to the registered address. In case of the Corporate Sector subscriber, the PRAN Kit alongwith T-PIN & I-PIN will either be sent to the subscriber's registered address or at the Corproate Head Office as per the option selected by the Corporate.

The PRAN Card is a document with PRAN, subscriber's name, father's name, photograph and signature/thumb impression.

NPS Account Information:

The NPS Scheme offers 2 types of account

1.             Tier I account – it is also known as Pension Account. Withdrawal from this account is restricted till the Subscriber attains the age 60 years. Minimum yearly contribution requirement in this account is Rs.6000.

2.             Tier II account – it is a normal investment account. Withdrawal from this account can be done as per the need of the Subscriber. Minimum yearly contribution requirement in this account is Rs.250 however on 31st March of each year total value of units in this account should be equal to or more than Rs.2000

An active Tier I account is mandatory for opening Tier II account. Tier II account can be opened along with Tier I account or at any time after Tier I account opening.

Fund options:

NPS gives Subscribers option to invest according to their choice and risk appetite among three funds. Three funds under NPS are

1.             Equity (Asset Class E)

2.             Corporate Bonds (Asset Class C)

3.             Government Securities (Asset Class G)

Subscriber can switch the asset allocation once in a financial year.

Investment Options:

Depending on the expertise on taking call on right asset mix, Subscribers have 2 investment options under NPS

1.             Active Choice – Under this option, subscriber can select the asset allocation among Equity, Corporate Bonds and Government Securities as per his / her choice.

2.             Auto Choice – Under this option, fraction of funds invested across three asset classes is determined by a pre – defined portfolio which will be based on the age of the Subscriber. This is also known as Life Cycle Fund option.

Tax Implication of NPS:

§  Employer's contribution to NPS on behalf of the employee is treated as perquisite in the hands of the employees, but is deductible u/s 80CCD (2) of the Income tax Act, 1961 to the extent of 10% of basic salary. This deduction is over and above the limit of Rs.1.5 lac u/s 80 CCD (1). This will lessen the tax burden of the employee to the extent of amount deductible u/s80CCD (2) of the Income tax Act, 1961.

§  Contribution by individual employee is eligible for a deduction from Income under Section 80CCD (1) of the Income Tax Act 1961 upto Rs 1.5 Lakhs. However, investments under Section 80C Section 80CCC and 80CCD(1) should not exceed Rs.1.5 lakhs per assessment year to claim for the deduction.

An additional exclusive tax benefit of Rs.50,000/- under section 80CCD (1B) per assessment year (applicable from F.Y 2015-16/A.Y 2016-17) for NPS investments.

 

Withdrawal from Tier I NPS account:

Amount from Tier I account can be withdrawn only on exit from NPS. Exit from NPS can be done at any point of time. The payout would be made to Subscriber as per below chart

Withdrawal before the age 60 years	Up to 25% of Employee’s contribution can be withdrawn in lump sum. Three times before 60 years of age (but after 10 years of contribution) for the purpose of 1. construction of House property, 2. marriage/education of children, 3. medical treatment. (G.O. issued dated 11.05.2015)
Withdrawal on attaining the age 60 years	1.      Up to 60% of Corpus can be withdrawn in lump sum (No Tax on this withdrawal ) 2.      Minimum 40% of the Corpus needs to be invested in Annuity

Subscriber can opt for any of the following options to receive pension by way of purchasing annuity

Annuity Schemes:

After retirement ,Depending on the need, Subscriber can select any of the below mentioned annuity plan (i.e. monthly payment of a fixed amount or PENSION as commonly called) offered by Annuity Service Providers registered with PFRDA

 Annuity payable for life at a uniform rate to the annuitant only

Annuity payable for 5, 10, 15 or 20 years certain and thereafter as long as you is alive

Annuity for life with return of purchase price on death of the annuitant (Policyholder)

Annuity payable for life increasing at a simple rate of 3% p.a

Annuity for life with a provision of 50% of the annuity payable to spouse during his/her lifetime on death of the annuitant.

Steps to be followed to check NPS Balance:

 First we have to visit   https://cra-nsdl.com/CRA/ website which is the official website of Central Record Keeping Agency and of National Securities Depository Limited.

You can get Balance, growth, statement of accounts etc., from the above website.

Every month you will be getting SMS about the amount credited to your NPS account.

However, if SOT (Statment of Transanction) is required in soft copy, the subscriber can give a request through CRA toll free number 1800-222-080 using TPIN.
SOT for last three financial years can be requested.
The SOT will be sent through email in the email id registered with CRA.
This is not a chargeable service.

Alternatively, by login to CRA system using IPIN, the subscriber can print his/her SOT (available for the last three years).

 

1.The Union Cabinet recently passed a Bill that seeks to ask pension fund managers to offer minimum assured return options to investors. This will come into force only after Parliament passes the PFRDA Bill.

2. Under the existing laws, up to 60 per cent corpus on maturity can be withdrawn while at least 40 per cent has to be used to buy annuity. At present, returns from annuity insurance plans are not tax-free like Old Pension.

 

For more information, please visit https://npscra.nsdl.co.in/citizens-scheme-informaion.php

 

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NPS and some unresolved questions

 इंकलाब जिंदाबाद के बड़े -बड़े  क्रांतिकारी और जोशीले नारों के बीच कभी कभी हम अपने छोटे छोटे अधिकारों की पुकार की आवाज सुन ही नहीं पाते।  या सुनते हैं तो उस पर कॉन्फिडेंस नहीं आता। कोई बताना समझना चाहता भी है तो हम सुनना नही चाहते।  जिसे बताना समझना चाहिए उसकी या तो प्राथमिकताएं बदल गई है या उसका इंटरेस्ट मर गया है या फिर उनकी व्यस्तताओं ने उन्हें असहाय बना दिया है।

बात इस सर्कुलर की हो रही है जिसे पेंशन विभाग के मंत्रालय ने जारी किया है। इस सर्कुलर के मुताबिक़ NPS के दायरे में आने वाले  सरकारी सेवा में संलग्न सभी कर्मियों अधिकारियों को सेवावधि में मृत्यु की स्थिति में फैमिली पेंशन  अंतिम वेतन के बेसिक का 60 फीसदी  +मंहगाई भत्ता  /  (60% of Basic of  last drawn salary+DA)  सुनिश्चित हुआ है।  अब प्रश्न ये है कि  क्या राष्ट्रीकृत बैंक के स्टॉफ सरकारी सेवा प्रदान कर रहे है या नहीं? इनकी नौकरी सरकारी है या नहीं। इस बाबत एक्सपर्स दो फाड़ में बटें हुए हैं। एक जो इसे सरकारी मानता है और दूसरा वो जो इन्हें सरकारी नही मानता । मैं कोई एक्सपर्ट नहीं .... इसलिए मेरा तर्क सपाट और सीधा हैं । अगर राष्ट्रीयकृत बैंक के कर्मी सरकारी नहीं तो हम निजीकरण का विरोध क्यों करते हैं? हम सरकारी कर्मी नहीं तो हमारे वेतन के पूर्णनिर्धारण में हर बार IBA और वित्त मंत्रालय क्यों हस्तक्षेप करता  है? हम सरकारी सेवा में नहीं तो हमारे पेंशन भोगी सेवानिवृत स्टॉफ क्यूं डायरेक्ट वित्त मंत्री निर्मला सीतारमन जी मुलाकात और वार्तालाप करते हैं?  हम सरकारी सेवा में नहीं तो क्यों सरकार अपनी समस्त कल्याणकारी योजनाओं का ठीकड़ा हमारे सर फोड़ती है। हम सरकारी नौकर नही तो क्यों जान जेखिम से भरे इलेक्शन ड्यूटी में हम बैंककर्मियों को हर बार तैनात किया जाता है?   आदि आदि..........।

2010 से  कोरोना काल और आज तक भारत के राष्ट्रीकृत बैंको में NPS धारक कर्मियों की मृत्यु की संख्या हजारों में हैं जिसके आश्रित परिवार वाले विषम आर्थिक कठिनाओं का दंश रोज झेल रहे हैं। मेरा मानना है कि हम Scrap NPS के लोकतांत्रिक नारों से आसमान को थर्राते रहे मगर जो लोग इस दौरान दुनिया को अलविदा कह गए उनके साथ अन्याय न होने दें । 2009 से अब तक मृत हुए सभी NPS धारक कर्मियों की पहचान हो और इस सर्कुलर के मुताबिक़ उनके परिवार को फैमिली पेंशन दिलाने का प्रयास किया जाए। और यदि इसमें कोई अड़ंगा या कानूनी अर्चन आती है तो संगठन इस न्याय की लड़ाई का ईमानदार और निर्णायक आधार बने।

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Five new rules recently NPS introduced

The government in the recent Budget announced several changes to the National Pension Scheme (NPS), including increasing the income tax exemption limit on withdrawal from the pension scheme. The government also announced some additional benefits exclusively for central government employees who contribute to the pension scheme. NPS Trust will restart recovery of administrative charges from the assets under management of subscribers. NPS Trust is responsible for the monitoring of the operational and service level functions under NPS or any other pension scheme regulated under the PFRDA Act.

Recent changes in NPS rules

1) The charges for NPS subscribers have increased marginally after NPS Trust also allowed recovery of administrative charges/expenses @0.005% per annum. “It is brought to the notice of all subscribers under National Pension System that, as approved by the Pension Fund Regulatory and Development Authority, NPS Trust will restart recovering administrative charges/expenses @0.005% per annum of the Asset under Management (AUM) on daily accrual basis to meet its expenditure," NPS Trust said in a notice to subscribers. This came into effect from 1 August, 2019.

From January this year, NPS Trust had stopped recovery of administrative charges/expenses that it used to charge @0.005% per annum of AUM on daily accrual basis to meet its expenses. The impact of the reimposition of @0.005% will have only a minimal impact, say experts. On an AUM of₹1 lakh, the new charge means that only ₹5 in extra charges will be deducted per year.

2) In Budget, which was tabled in July and later approved by the Parliament, the government had raised the income tax exemption limit on withdrawal from NPS corpus on retirement, or reaching the age of 60, to 60% from 40%.

On retirement, an NPS subscriber can withdraw a lumpsum of up to 60% of the NPS corpus fund and balance 40% has to be invested in an annuity plan. This makes NPS an Exempt, Exempt and Exempt (EEE) product like Public Provident Fund and Sukanya Samriddhi Yojana though only 60% of the corpus can be withdrawn.

3) For central government employees, Section 80CCD(2) of the Income Tax Act has been amended to allow exemption of employer contribution up to 14% of the salary of central government employees. This move benefits approximately 18 lakh central government employees covered under NPS. This is not applicable for private sector employees.

4) The government has also allowed own contribution by central government employees to Tier II account qualify for income tax benefits under Section 80C, provided the money is locked in for a period of 3 years.

5) Earlier this year, pension fund regulator PFRDA gave government sector NPS subscribers more choice in terms of selecting fund managers to manage their NPS contributions. Central Government subscribers have been allowed to choose any one of the pension funds including private sector pension fund manager. Government employees have the freedom to choose asset allocations, allowing more equity exposure. Earlier it was capped at 15%.

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