Old Pension vs New Pension Scheme:Diffrence Between OPS And NPS

Old Pension vs New Pension Scheme:- Many countries are reviving pension systems (OPS). Recent reports indicate that the Punjab government is changing its efforts to reintroduce OPS into its operations. If the plan is implemented, Punjab will become the fourth state in the union to revive the pension scheme. Many states in India, including Rajasthan, Chhattisgarh and Jharkhand, have implemented pension systems. In today’s article, we will take a look at Old Pension Schemes vs New Pension Schemes and their objectives and benefits.

Old Pension vs New Pension Scheme

Many countries are returning to old pension systems. Rajasthan, Chhattisgarh and Jharkhand announced renewal of old pension scheme for government employees in 2022-2023. Traditional pension plans provide income during retirement. The OPS was abolished in December 2003 under the BJP government of Atal Bihar Vajpayee as Prime Minister. On April 1, 2004, it was replaced by the National Pension System (NPS). Broadly speaking, both NPS and existing pension schemes can be classified as pension schemes. On the other hand, these two things are not the same. In the following article, we will explain the main differences between the two.

What Is Old Pension Scheme?

  • If the employer participates in OPS, employees are not allowed to contribute to the retirement fund.
  • The old pension scheme was terminated in 2003.
  • When employees retire from the old pension scheme, they are entitled to receive their latest starting salary + or 50% of their average salary over the last ten months. , take the path that works best for them. One must have at least 10 years of experience.
  • The old pension plan guaranteed a monthly income to civil servants upon retirement.
  • Pension equal to fifty percent of the newly received salary.
  • Employees are not entitled to tax benefits.
  • Income from an existing pension plan is not tax exempt.
  • After retirement, pension schemes are available to those who have worked for the government and received pensions.
  • Due to changes in people’s lives, OPS is no longer suitable for the government.

What Is New Pension Scheme?

  • On April 1, 2004, the new pension system came into effect.
  • Those working in the government and participating in the NPS contribute 10% of their income to the NPS and their employer contributes 14% of the total.
  • Effective April 1, 2019, employer contributions for government employees increased by 14%.
  • People working in the private sector can still join the NPS.
  • Whether a pension fund invests in stocks or debt, a skilled pension fund manager can ensure high returns and a large pension pool.
  • If you are not the risk-taking type, the guaranteed payment mechanism in OPS will pique your interest.
  • While working for the organization, employees pay a portion of their wages to the NPS. Money invests in market-linked products to be successful.
  • beneficiaries can deduct NPS up to Rs 1,50,000 from their income.
  • An additional income of Rs 50,000 per annum is eligible for tax deduction under Section 80CCD (1B) of the Act.
  • Retirees can receive pension under NPS.
  • 60% of the elderly group is tax-free, and the remaining 40% must invest in annuities to obtain income or retirement benefits. NPS is open to all individuals between the ages of 18 and 65 years.

Diffrence Between Old Pension Scheme And New Pension Scheme

  • The key difference between OPS and NPS is that the latter provides money earned by employees while working in the stock market, such as stocks.
  • The National Pension System (NPS) provides retirees with a pension fund that can be paid tax-free on 60 percent of its value; the remaining forty percent must be withdrawn within one year and is subject to full tax.
  • OPS income is not subject to withholding tax.
  • In the absence of such a person with great influence and ability to take risks, he should be satisfied with the NPS plan.

New Pension Scheme vs Old Pension Scheme(Diffrence Table)

New Pension System(NPS) Old Pension System(OPS)
NPS is an investment-based pension program that invests some of the money in the market for higher returns. OPS is a non Investment based pension program.
NPS returns aren’t certain.The subscriber’s asset allocation during employment determines returns. The previous pension program guaranteed government retirees a monthly payout.
Government employees and private employees may join the NPS. only for government employees.
This scheme can attract taxes as well. No tax Under OPS
Employees contribute to NPS from their salaries. Market-linked instruments are used. 50% of the last salary becomes the pension.
Its involves risk Its risk free
Can have larger returns after retirement but no guarantee can also return smaller than expected You will always have the same returns as it depends on the last salary taken.
Employees give a monthly contribution to their future from their salaries. Employees do not have to invest anything from their salaries.
Plans are stable for the government and beneficial. As the money is already invested by the employee during his working periods. This plan is unstable for the government as retired people’s life expectancies increase. It is costly for the government to run such schemes.

Importance of NPS over OPS

  • The Center has launched a new pension scheme for employees joining after January 1, 2004 (except the armed forces). Most states, except Tamil Nadu and West Bengal, followed suit.
  • Enhanced pensions were significantly modified. Suresh Sadagopan, founder, Ladder7 Financial Advisors, said reviving OPS is risky. According to a March 2018 study by SBI,
  • OPS (pay-as-you-go scheme) is a non-cash pension plan where funds are available to help pay for retirement.
  • Long-term trends show that public pension liabilities are rising rapidly.
  • The “12-year” CAGR for all state government pension provisions is 34%. In fiscal year 2021, retirement funds accounted for 13.2% of all government revenue and 29.7% of tax revenues, the research paper said.Improvements in living standards have affected pension payments.



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