Old and New Pension Schemes

    Until 2004, being employed with the Government was considered a service to the nation and hence government employees were eligible for pension under the Old Pension Scheme (OPS). Eventually and inevitably, (also observed in other nations around the world) the scheme became unsustainable due to annual increases in pensioners’ benefits, and increasedlife expectancy,thus resulting in extended payouts. Employees simply refuse to die! This was an ever-increasing burden on the Government’s finances.

    To bring this under control, the New Pension Scheme (NPS) was implemented in 2005.

    How does the NPS differ from the OPS you ask?

    Old PensionNew Pension
    NaturePension to all government employees.Govt. pays employees for their investments in NPS during employment.
    Pension50% of last drawn salary60% lump sum and rest invested in annuities for pension
    Tax BenefitsNo tax benefitsTax benefits available.
    Income TaxNo taxTaxable
    Choice of InvestingNo choiceTwo choices
    Who can avail?Only government employeesAll citizens between 18-65 years
    Scheme SwitchOPS can be switched to NPSNPS cannot be switched back to OPS.

    The governments of Rajasthan & Himachal Pradesh continue to offer OPS to their employees, perhaps because they still believe that government employment means service to the nation. Other states, however, swiftly switched to the NPS.

    If you’re wondering what pension plan suits you best, feel free to contact insurancepe.


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