Comparison between old pension and new pension scheme

Here's a comparison between the Old Pension Scheme (OPS) and the New Pension Scheme (NPS):

Old Pension Scheme (OPS)

  1. Eligibility: All government employees who were appointed before January 1, 2004, are covered under the OPS.
  2. Contribution: The employer contributes 10% of the employee's basic salary towards the pension fund.
  3. Pension: The pension is calculated based on the employee's last drawn basic salary and the number of years of service. The pension is paid for life, and the spouse receives a pension after the employee's death.
  4. Gratuity: A lump-sum payment is made to the employee at the time of retirement, equal to 15 days' salary for each year of service.
  5. Family Pension: The spouse and dependent children receive a pension after the employee's death.
  6. Retirement Benefits: The employee receives a pension, gratuity, and other retirement benefits.

New Pension Scheme (NPS)

  1. Eligibility: All government employees who were appointed on or after January 1, 2004, are covered under the NPS.
  2. Contribution: Both the employer and employee contribute 10% of the employee's basic salary towards the pension fund.
  3. Pension: The pension is calculated based on the employee's contributions and the returns earned on those contributions. The pension is paid for life, and the spouse receives a pension after the employee's death.
  4. Gratuity: There is no lump-sum payment of gratuity under the NPS.
  5. Family Pension: The spouse and dependent children receive a pension after the employee's death.
  6. Retirement Benefits: The employee receives a pension and other retirement benefits.

Key differences

  1. Contribution: Under the OPS, the employer contributes 10% of the employee's basic salary, while under the NPS, both the employer and employee contribute 10%.
  2. Gratuity: The OPS provides a lump-sum payment of gratuity, while the NPS does not.
  3. Pension calculation: The OPS calculates the pension based on the employee's last drawn basic salary and the number of years of service, while the NPS calculates the pension based on the employee's contributions and the returns earned on those contributions.
  4. Flexibility: The NPS offers more flexibility in terms of investment options and withdrawal rules compared to the OPS.

Advantages of NPS

  1. Portability: NPS accounts are portable, meaning employees can transfer their accounts to a new employer or withdraw their funds if they leave the government service.
  2. Flexibility: NPS offers a range of investment options, including equity, debt, and alternative investments.
  3. Higher returns: NPS investments are expected to generate higher returns compared to traditional pension schemes.

Disadvantages of NPS

  1. Risk: NPS investments carry risk, and the returns may vary.
  2. Limited benefits: NPS does not provide a lump-sum payment of gratuity, which may be a disadvantage for some employees.
  3. Complexity: NPS has more complex rules and regulations compared to the OPS.

In conclusion, while both the OPS and NPS provide retirement benefits to government employees, the NPS offers more flexibility and portability, but also carries more risk. The choice between the two schemes depends on individual circumstances and preferences.