OLD
PENSION SCHEME - GOVERNMENT SCHEME
News: Bring back old pension scheme, Central government employees write to Cabinet Secretary
What's
in the news?
● A federation of Central government employees’ unions has written to the Cabinet Secretary to restore the Old Pension Scheme (OPS), stating that the National Pension System (NPS) is a disaster for retiring employees in their old age.
Key
takeaways:
●
The federation said a Defence
establishment official who recently retired after more than 13 years of service
received only 15% of the assured pension he would have otherwise availed under
the OPS.
●
Under the NPS, the official with a basic
pay of ₹30,500 received ₹2,417 as monthly pension as against the ₹15,250
pension he would have been given under the OPS.
● It is now 18 years after the implementation of NPS. Employees who were recruited on or after 01/01/2004 have now started retiring from service. From the paltry amount they are now getting as pension from NPS it is proved that it is a disaster for the retiring employees in their old age and not a win-win situation.
Old
Pension Scheme:
●
The OPS or the Defined Pension Benefit
Scheme assured life-long income
post-retirement, usually equivalent to 50% of the last drawn salary.
● Government bears the expenditure incurred on the pension.
Go
back to basics:
National
Pension Scheme:
●
The Atal Bihari Vajpayee government in
2003 decided to discontinue the OPS and introduced the NPS.
●
The scheme, applicable to all new recruits joining Central Government service
(except the Armed Forces) from April 1, 2004, is a participatory scheme, where employees contribute to pension corpus
from their salaries, with matching contribution from the government, and is market-linked.
●
Except West Bengal, all States implemented
the NPS. This year, Opposition-ruled Chhattisgarh, Rajasthan, Jharkhand and
Punjab announced that they would restore the OPS.
● Till February, there were 22.74 lakh Central government employees and 55.44 lakh State government employees enrolled under the NPS.
Features
of NPS:
●
It is a scheme, where employees contribute
to their pension corpus from their salaries, with matching contributions from
the government.
●
The funds are invested in earmarked
investment schemes through Pension Fund Managers.
●
At
retirement, they can withdraw 60% of the corpus, which is tax-free and the
remaining 40% is invested in annuities, which is taxed.
●
It
can have two components - Tier I and II.
●
Tier-II is a voluntary savings account
that offers flexibility in terms of withdrawal, and one can withdraw at any
point of time, unlike Tier I account.
● Private individuals can opt for the scheme.
Old
Pension Scheme or Defined Pension Scheme:
●
The scheme assures life-long income, post-retirement.
●
Usually the assured amount is equivalent
to 50% of the last drawn salary.
● The Government bears the expenditure incurred on the pension. The scheme was discontinued in 2004.
Issues
of Old Pension Scheme:
●
Economists say the issue is simple -
longer lifespans meaning more pension payout.
●
For instance, employees retiring at 60 and
having an average lifespan of nearly 80 years or more have to be paid for over
two decades after superannuation.
●
Moreover, in the event of the death of the
pensioner, their spouses are entitled for a portion of the pension under the
OPS. This led to a massive pension burden on the Union and state governments.