Advantages of new pension scheme over old pension scheme

The New Pension Scheme (NPS) was introduced in 2004 to replace the old pension scheme, which was based on the defined benefit (DB) model. The NPS is a defined contribution (DC) scheme, where the employee contributes a portion of their salary to a pension account, and the employer also contributes a matching amount. Here are some advantages of the NPS over the old pension scheme:

Advantages of NPS over Old Pension Scheme:

  1. Portability: NPS allows employees to take their pension account with them if they change jobs, whereas the old pension scheme was tied to the employer.
  2. Flexibility: NPS offers a range of investment options, allowing employees to choose their investment strategy, whereas the old pension scheme had a fixed investment portfolio.
  3. Higher Returns: NPS offers higher returns due to the diversified investment options, whereas the old pension scheme had a fixed return.
  4. Tax Benefits: NPS offers tax benefits under Section 80CCD(1) and Section 80CCD(2) of the Income-tax Act, 1961, whereas the old pension scheme did not offer tax benefits.
  5. Increased Employee Contribution: NPS allows employees to contribute up to 10% of their salary, whereas the old pension scheme had a maximum contribution limit of 8.33%.
  6. Employer Contribution: NPS allows employers to contribute up to 14% of the employee's salary, whereas the old pension scheme had a maximum employer contribution of 8.33%.
  7. Annuity Options: NPS offers a range of annuity options, allowing employees to choose how they want to receive their pension income, whereas the old pension scheme had limited annuity options.
  8. Increased Pension Amount: NPS allows employees to accumulate a higher pension amount due to the higher contribution limits and higher returns.
  9. No Ceiling on Pension Amount: NPS does not have a ceiling on the pension amount, whereas the old pension scheme had a ceiling on the pension amount.
  10. Government Support: NPS is supported by the government, which provides a guarantee on the returns and ensures that the scheme is sustainable.
  11. Increased Transparency: NPS provides regular statements and updates on the pension account, allowing employees to track their pension corpus, whereas the old pension scheme did not provide regular updates.
  12. No Risk of Pension Fund Insolvency: NPS is a defined contribution scheme, which means that the employee's pension is not at risk of being affected by the insolvency of the pension fund, whereas the old pension scheme was a defined benefit scheme, which meant that the pension was at risk of being affected by the insolvency of the pension fund.

Overall, the NPS offers more flexibility, higher returns, and greater portability than the old pension scheme, making it a more attractive option for employees.