The Centre’s move to continue the New Pension System (NPS) for central government employees has been supported by former Deputy Chairman of erstwhile Planning Commission Montek Singh Ahluwalia, who feels that states going back to the Old Pension Scheme (OPS) are taking a wrong decision.

The Atal Bihari Vajpayee government in January 2004 introduced the NPS for most central government departments, replacing the OPS. Barring the armed forces and select government departments, all central staff were brought under the purview of the NPS which seeks contributions from both employees and the Centre.

Ever since the OPS was scrapped in 2004, central government employee unions have been demanding the restoration of the old scheme in place of the New Pension System (NPS), arguing that it does not provide any guaranteed pension on retirement like the OPS.

Also read: New NPS Rules: Central govt employees to enjoy bigger retirement corpus, higher pensions now

Favouring the Centre’s move to continue the NPS, Ahluwalia told news agency ANI that he remained of the view that “around the world the pension scheme which is based on pay as you go (where) you make pension demands and do not make any provisions for them and the government simply pays the pension…it’s a bad idea”.

“The fact that we moved away from that scheme (OPS) to the New Pension Scheme and that was actually done during the Vajpayee government, I think that was a right decision. Throughout the UPA it continued and that was a right decision. As far as the central government is concerned, it still continues,” the former deputy chairman of the erstwhile Planning Commission said.

Ahluwalia went on to say that some states going back to the Old Pension Scheme is a “mistake”. He stressed that the government can always modify the NPS to take care of the concerns raised but bringing back the OPS is a “bad idea”.

Old Pension Scheme Vs New Pension System

Applicability:

NPS: Applies to new recruits joining the central government service from January 1, 2004.
OPS: Applies to government employees who joined service prior to January 1, 2004.

Funding:

NPS: Contributions are made by both the employee and the government.
OPS: Entire pension expenditure is borne by the government.

Features:

NPS:
Employees contribute 10% of their basic pay and Dearness Allowance (DA).
The government contributes 14%.

OPS:
Provides an assured pension, typically 50% of the last drawn salary.

Also read: Unified Pension Scheme: What will be the minimum pension under UPS after 8th Pay Commission gets implemented?

Unified Pension Scheme (UPS) to be implemented from April 1, 2025

Amidst demands from various quarters to restore the OPS, the Centre in August last year announced the Unified Pension Scheme, which will guarantee a minimum pension for central government employees after retirement. The UPS will come into effect on April 1, 2025, while the NPS will also be available as an option for those who feel they are better off under the New Pension System.

5 key features of the UPS:

Assured pension: Government employees would have an option to choose the UPS which will assured them a pension amount equivalent to 50% of their average basic pay over the last 12 months before retirement, provided they have completed a minimum qualifying service of 25 years. For employees with less than 25 years of service, the amount would decrease proportionately, with the minimum requirement being 10 years of service.

Assured minimum pension: There would be a provision of a minimum pension, provided the employee completes a minimum of 10 years of service. The minimum pension will be Rs 10,000 per month under UPS.

Assured family pension: In case of the death of the pensioner, the immediate family member will be eligible for 60% of the last pension the individual drew.

Inflation indexation: Under UPS, there will also be a dearness relief in case of the above mentioned pensions. This will be calculated based on the All India Consumer Price Index for Industrial Workers, just like for serving employees.

Lumpsum payment at superannuation: This payment would come in addition to the gratuity. It will be calculated as one-tenth of the monthly emolument (pay plus dearness allowance) as of the date of retirement, for every six months of service completed.