The Old Pension Scheme

The Old Pension Scheme (OPS) 

What is it? 

• • OPS provides pensions to federal workers based on their most recent income.
  •  50% of the wage that was last drawn.
  • The Old Pension Scheme, or “OPS,” was appealing because it promised retirees an assured or “defined” benefit. Thus, it was referred to as a “Defined Benefit Scheme.” 
  • For example, a government employee would be guaranteed a pension of Rs 5,000 if her base monthly pay at the time of retirement was Rs 10,000.
  • Along with increases in government employee salary, dearness allowance (DA) increases for serving government employees also resulted in increases in pensioners’ monthly payouts. 
  • In 2003, the Central government terminated the OPS. 

What issues did the OPS raise? 

• •  The primary issue was that the pension liabilities was still unfunded, meaning there was no corpus set aside for pensions that could be drawn upon for payments and would grow steadily over time.
  •  Pensions were covered by the Government of India’s annual budget, but there was no explicit plan for how payments would be made in the future. 
  •  Intergenerational equity concerns were brought about by the “pay-as-you-go” model, which meant that the current generation was forced to shoulder the ever increasing cost of pensioners. 

 The New Pension Scheme (NPS): 

What is it? 

• • In April 2004, the Central government created the NPS as an alternative to the OPS.
    
    
  • Employees in the public, private, and even unorganized sectors are eligible for this pension plan, with the exception of those in the military forces. 
  • After retirement, subscribers can withdraw a predetermined portion of the corpus. 
  • The system encourages people to make monthly contributions to a pension account during their work. 
  • After retirement, the beneficiary gets the leftover sum as a monthly pension.
    Pension Fund Regulatory and Development Authority (PFRDA) is the nodal agency.

Eligibility: 

• • Anyone aged 18 to 60 who is an Indian citizen is eligible to join NPS. 

• • Non-resident Indians, or NRIs, may also apply for NPS.
  • PRAN, or Permanent Retirement Account Number: 
  • The Permanent Retirement Account Number, or PRAN, is a 12-digit unique number that is issued to each NPS subscriber.
  • Minimum NPS contribution: During a fiscal year, a subscriber must contribute a minimum of Rs. 6,000. 
  •  Should the subscriber neglect to make the required minimum contribution, the PFRDA would freeze their account. 

Who is in charge of the NPS investment funds? 

• • Pension Fund Managers registered with PFRDA oversee the funds invested in NPS.
  • There are eight pension fund managers as of right now. 

What distinguishes NPS and OPS from one another? 

• •  One pension-focused scheme is the Old Pension Scheme. It provides pensions to workers on a regular basis after they retire. 
  • Fifty percent of the employee’s most recent pay is their pension. 
  • As a result, the pension amount in OPS is fixed. 
  • The National Pension Scheme, on the other hand, is an investment-based pension plan. Contributions to the NPS are invested in market-linked securities, such as debt and equity instruments. 
  • NPS does not, therefore, guarantee returns. 
  •  Nonetheless, NPS investments are speculative and hence have the potential to yield large profits. 
  • One of the RBI’s main concerns regarding the sub-national fiscal horizon is the return of several states to the Old Pension Scheme (OPS). 
  • According to the RBI, “states risk accumulation of unfunded pension liabilities in the coming years by postponing current expenses to the future.” 
  • A number of states, including Rajasthan, Himachal Pradesh, Jharkhand, Punjab, and Chhattisgarh, have declared their intention to rejoin the OPS, guaranteeing retired government workers a monthly pension equal to 50% of their final salary.
  • Numerous economists have criticized the state’s action. 
  • The pension expense is already considerable in a number of circumstances.