Difference between old and new pension scheme
In India, there are two types of pension schemes: Old Pension Scheme (OPS) and New Pension Scheme (NPS). The main difference between the two schemes is the way the pension is calculated and the benefits provided to the employees.
Old Pension Scheme (OPS)
The Old Pension Scheme was introduced in 1995 and was applicable to all government employees who were recruited before January 1, 2004. Under this scheme, the pension is calculated based on the employee's last drawn basic pay and the number of years of service. The pension is paid to the employee for life, and the spouse and children are entitled to receive a portion of the pension after the employee's death.
Key features of OPS:
- Pension is calculated based on the employee's last drawn basic pay and the number of years of service.
- The pension is paid to the employee for life.
- The spouse and children are entitled to receive a portion of the pension after the employee's death.
- The pension is indexed to inflation, which means that the pension amount increases every year to keep pace with inflation.
New Pension Scheme (NPS)
The New Pension Scheme was introduced in 2004 and is applicable to all government employees who were recruited on or after January 1, 2004. Under this scheme, the pension is calculated based on the employee's contributions and the returns earned on those contributions. The pension is paid to the employee for life, and the spouse and children are entitled to receive a portion of the pension after the employee's death.
Key features of NPS:
- Pension is calculated based on the employee's contributions and the returns earned on those contributions.
- The pension is paid to the employee for life.
- The spouse and children are entitled to receive a portion of the pension after the employee's death.
- The pension is not indexed to inflation, which means that the pension amount does not increase every year to keep pace with inflation.
Comparison of OPS and NPS
Here are some key differences between the Old Pension Scheme and the New Pension Scheme:
- Pension calculation: OPS calculates pension based on the employee's last drawn basic pay and the number of years of service, while NPS calculates pension based on the employee's contributions and the returns earned on those contributions.
- Inflation indexing: OPS is indexed to inflation, which means that the pension amount increases every year to keep pace with inflation. NPS is not indexed to inflation, which means that the pension amount does not increase every year to keep pace with inflation.
- Spouse and children benefits: Both schemes provide benefits to the spouse and children after the employee's death, but the amount of benefit is different.
- Contribution: OPS does not require any contribution from the employee, while NPS requires the employee to contribute a certain percentage of their salary to the scheme.
In summary, the Old Pension Scheme provides a more generous pension benefit to employees, with a higher pension amount and inflation indexing. The New Pension Scheme, on the other hand, provides a lower pension benefit to employees, with no inflation indexing.