Many countries are going back to the old pension system. The previous pension scheme, in which Rajasthan, Chhattisgarh and Jharkhand recently announced the resumption of the old pension scheme for government employees in the 2022–2023 financial year, provided guaranteed income after retirement. In December 2003, the BJP-led government with Atal Bihar Vajpayee as Prime Minister put an end to the OPS.

From 1 April 2004, it was replaced by the National Pension System (NPS). Broadly speaking, both the NPS and the Prepension System can be classified as pension plans. In other words, these two things are not the same. In the next article, we will explain in more detail what the main difference between the two is.

What is Old Pension Scheme (OPS) 

• Employees are exempt from making contributions to their pensions if their employer participates in the OPS. 
• The old pension was closed in 2003.
• When an employee retires in the old pension scheme, they are eligible to receive either 50 percent of their most recently drawn basic salary + dearness allowance or their average wages in the most recent ten months of service, depending on which option is most beneficial to them. The individual has to have a minimum of 10 years of service under their belt.
• The former pension plan guarantees a certain amount of money each month to government workers after they have retired.
• The pension was equal to fifty percent of the most recent wage that was taken out.
• The workers are not eligible for any tax advantages of any kind.
• Income received via the previous pension plan is exempt from taxation.
• After retirement, the previous pension plan is only available to those who worked for the government and were qualified to receive a pension.
• Because of improvements in people’s life expectancies, OPS has become unsustainable for governments. 

What is New Pension Scheme (NPS)

• On April 1, 2004, the new pension plan went into force. 
• Those who are employed by the government and participate in this NPS pay ten percent of their basic income to the NPS, while their employers contribute up to fourteen percent of the total. 
• As of the first of April in 2019, the contribution rate that the employer makes for workers of the central government has been increased to 14 percent.
• Those working in the private sector are still permitted to freely engage in the NPS.
• Regardless of whether the pension fund is invested in stock or debt, a skilled pension fund manager can make certain that greater returns and a bigger retirement corpus are attained.
• If you are not the kind of person who enjoys taking chances, the guaranteed payout option in OPS is definitely going to pique your interest.
• During their time working for the organization, workers pay a portion of their salaries to the NPS. The sum is placed in market-linked products for investment purposes.
• Beneficiaries may deduct an investment in the NPS of up to 1,50,000 rupees from their taxable income. 
• Under the provisions of Section 80CCD (1B) of the Act, additional yearly investments of up to Rs 50,000 are eligible for a tax deduction.
• Under the NPS a retiree may take a lump payment from their pension. 60% of the maturity corpus is tax-free, while the remaining 40% must be deposited in annuities for a normal income or pension. 
• Participation in the NPS is open to all citizens of the nation between the ages of 18 and 65.

Old Pension vs New Pension Scheme: Know the Difference

• One of the most significant distinctions between the OPS and the NPS is that the latter invests the contributions made by workers over the course of their employment in market instruments such as stocks. 
• “Consequently, the NPS creates market-linked returns without any certainty of returns, but the OPS gives such an assurance by basing the monthly stipend on the employee’s most recently received income.” The National Pension System (NPS) offers retirees access to a pension fund that, upon redemption, is exempt from taxation on sixty percent of its value; the remaining forty percent must be invested in an annuity, which is subject to complete taxation. 
• There is no tax withheld on OPS income.
• If an interested citizen does not have much ability or capacity to take risks, they must be happy with the NPS system.

Importance of NPS over OPS