There have been rumours concerning the shift in pension schemes, after three states—Rajasthan, Chhattisgarh, and Jharkhand—reverted back to the Old Pension Scheme and abandoned the New Pension Scheme. The Punjab government has recently switched its employees back to OPS. You may now be asking what the differences between the Old and New Pension Schemes are.
What is the Old Pension Scheme?
OPS or Old Pension Scheme is a government-authorised retirement scheme. The beneficiaries receive a monthly pension from it till the end of their service lives. The monthly pension equals one-half of the person’s most recent pay.
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Employees in the OPS receive 50% of their final drawn basic salary plus a dearness allowance upon retirement, or their average pay over the previous ten months of employment, whichever is more favourable to them.
What is the New Pension Scheme?
NPS or New Pension Scheme is a retirement scheme which was introduced in 2004 by the government of India. In NPS the beneficiaries will be able to withdraw 60% of the amount invested after retirement.
Government employees who participate in this NPS contribute 10% of their base pay, while their employers may contribute up to 14%.
What is the difference between Old Pension Scheme and New Pension Scheme?
Government personnel are eligible for pensions under the Old Pension Scheme based on their last drawn wage whereas the New Pension Scheme reimburses the employees for their contributions made while they were employed by the NPS Scheme.
Under OPS employees receive 50% of the last drawn salary as a pension whereas under NPS employees get a 60% lump sum after retirement and 40% is invested in annuities for getting a monthly pension
There are no tax benefits in OPS and in NPS the employees can claim tax deductions of 1.5 lakh and up to 50,000 on other investments.
OPS scheme can be switched to NPS but the NPS scheme cannot be switched back to OPS. In general, central government employees can switch back to OPS in case of death and disablement of the employee.
There is no tax on pension in OPS but in NPS 60% of the Corpus is tax-free while the remaining 40% is taxable.
