Government rules out reintroduction of Old Pension Scheme

The Government ruled out reintroduction of Old Pension Scheme (OPS) for government employees, in writing to a question asked in the Lok Sabha. In the year 2004, the old pension scheme was replaced by the National Pension System (NPS). It was mandatory for all Central Government employees. Which provided for a defined benefit pension to government employees. A defined benefit is a type of pension, which is fixed and determined with reference to the number of years of service and salary. Whereas NPS, on the other hand, is linked to the market.

It was subsequently extended to the state government employees also and to the private sector. However, some government employee organisations have consistently opposed the NPS since it does not provide a fixed pension amount. There was an expectation from some sections that the government may reintroduce OPS for Central Government employees based on this opposition. However, the government has firmly laid any speculation in this direction to rest.

The Government mentioned two reasons for opposing the reintroduction of OPS. First, it pointed to a "rising and unsustainable pension bill" and said that "the Government had made a conscious move to shift from the defined benefit, pay-as-you-go pension scheme to defined contribution pension." Second, it mentioned that "the transition also helped in freeing the limited resources of the Government for more productive and socio-economic sectoral development".

The NPS allows subscribers to invest their pension corpus in government bonds, corporate bonds and equities but does not provide a guaranteed pension. In the recently announced Budget, for Central Government employees, the Government increased its contribution to NPS from 10% to 14%. It also permitted Central Government employees to invest in NPS Tier 2 and get the benefit of tax deduction under Section 80C. This investment will have a lock-in of three years. It also increased the tax-free portion of the NPS corpus on maturity from 40% to 60%. All these measures have made the NPS more attractive to government employees.