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 Pension||New Pension|
|Nature||Pension to all government employees.||Govt. pays employees for their investments in NPS during employment.|
|Pension||50% of last drawn salary||60% lump sum and rest invested in annuities for pension|
|Tax Benefits||No tax benefits||Tax benefits available.|
|Income Tax||No tax||Taxable|
|Choice of Investing||No choice||Two choices|
|Who can avail?||Only government employees||All citizens between 18-65 years|
|Scheme Switch||OPS can be switched to NPS||NPS 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.