Old Pension Scheme: A Comprehensive Guide

The Old Pension Scheme has been a cornerstone of retirement planning for many individuals. It was introduced to provide a secure financial future for employees upon their retirement.

The scheme was applicable to all central government employees who joined service before January 1, 2004. This means that if you joined the government sector before this date, you're likely eligible for the Old Pension Scheme.

One of the key benefits of the Old Pension Scheme is that it provides a guaranteed pension to employees upon retirement. This pension is calculated based on the employee's last pay and the number of years of service they have rendered.

The scheme also offers a family pension to the spouse and children of the employee in the event of their demise.

The Old Pension Scheme, or OPS, was a defined benefit scheme that offered pensions to government employees based on their last drawn salary. The pension was 50% of the last drawn salary, so if a government employee's basic monthly salary at the time of retirement was Rs 10,000, they would be assured of a pension of Rs 5,000.

The OPS was attractive because it promised an assured benefit to the retiree. This meant that the monthly pay-outs of pensioners increased with hikes in dearness allowance or DA announced by the government for serving employees.

To give you a better idea of how this worked, here's an example of how the OPS would have applied to a government employee with a salary of Rs 10,000:

As you can see, the pension increased by Rs 500 for every Rs 1,000 increase in salary. The OPS was discontinued by the Central government in 2003.

If you're a Central Government civil employee, you have the option to choose the Old Pension Scheme (OPS). Employees who joined service on or after 01.01.2004 and are covered under the NPS can opt for the OPS.

To be eligible, you must have been appointed for a vacant post advertised or notified before the NPS notification date, which is 22.12.2003. You must also have been covered under the NPS to be eligible for the OPS.

Here are the specific conditions to be eligible for the OPS:

You need to file for the OPS before 31.08.2023 to take advantage of this option. If you don't choose the OPS within this timeframe, you'll continue to be covered under the NPS.

If you're a Central Government civil employee, you may have the option to choose between the New Pension Scheme (NPS) and the Old Pension Scheme (OPS).

Employees who were appointed for a vacant post advertised or notified before the NPS notification date, i.e. 22.12.2003, and joined service on or after 01.01.2004, can choose the OPS.

To be eligible, you must be covered under the NPS, so it's essential to check your current pension scheme status.

You can choose the OPS by filing for it before 31.08.2023, but if you don't make a decision by then, you'll continue to be covered under the NPS.

Here are the specific conditions for choosing the OPS:

The new pension policy is a major improvement over the old one, as it will be fully funded. This means that the government and employees will contribute to the pension fund, making it more sustainable.

The old pension scheme, on the other hand, was an unfunded system, which led to a sharp unsustainable jump in pension liabilities. This was a major concern for state governments, with India's federal pension budget reaching ₹2.34 lakh crore in 2023-24.

The current National Pension System (NPS) was implemented in 2004 as a major fiscal reform to address this issue. Under the NPS, the government's share in total contribution stood at 14%, while employees had to pay 10% of their emoluments.

The new Universal Pension Scheme (UPS) unveiled on Saturday has a higher government contribution of 18.5%, while employees will still contribute 10%. This increased government contribution is a key reason why the government will be able to offer an assured amount under the new policy.

As of 2020-21, the pension outgo as a percentage of revenue receipts stood at 13.2%, highlighting the significant burden that pension liabilities had become.

The Old Pension Scheme (OPS) has its fair share of advantages and disadvantages. One of the main advantages is that it assures a life-long income post-retirement. The pension amount is calculated based on a predetermined formula, which is 50% of the last drawn basic salary plus DA or the average earnings in the last ten months of service, whichever is more.

The OPS also provides a guaranteed income that increases with the revision of DA twice a year. Additionally, there is no deduction from the salary of employees for pension payments, and the government bears the expenditure incurred on a pension. This means that employees can rely on a steady income after retirement.

However, there are also some significant disadvantages to consider. One major drawback is that the OPS is a massive pension burden on the Central and State government. There is no corpus created for pensions, which means that the government has to bear the entire liability for pension payments. This makes the scheme unsustainable, as the pension liabilities keep increasing every year.

Here are some key points to consider:

The National Pension Scheme (NPS) has its share of advantages and disadvantages. One of the biggest advantages is that employees can withdraw 60% of the corpus upon retirement, which is tax-free.

Employees have more flexibility and control over NPS investments since they can choose the professional fund manager with the highest return. This is a significant advantage, as it allows employees to take an active role in managing their retirement funds.

One of the disadvantages of NPS is that the pension amount is not fixed, as it is paid based on the return on investments made in market-linked instruments managed by professional fund managers. This can be a drawback for employees who prefer a guaranteed income.

To give you a better idea of the pros and cons of NPS, here are some key points to consider:

However, it's worth noting that employees should contribute 10% of their basic salary plus DA towards their monthly pension, which can be a significant burden. Additionally, many people are unaware of financial terms, such as equities, debt, securities, etc., which can make it difficult for them to choose the best NPS fund manager for their investments.

The Old Pension Scheme (OPS) has been a topic of discussion for many years, and while it offers several benefits, it also raises some concerns. One of the main issues with the OPS is that the pension liability remains unfunded, meaning there is no corpus specifically for pension that can grow continuously and be used for payments.

The government had to bear the expenditure incurred on pensions, which can be a significant financial burden. This burden can strain government finances, impacting other development initiatives.

The OPS is a defined benefit scheme, and the amount of pension received after retirement is fixed based on a predetermined formula. However, this formula does not account for the increasing life expectancy of retirees, which can lead to extended pension payouts.

The OPS calculation is as follows: Pension = (Final Basic Salary x Number of Years of Service) / 80. This formula ensures that the retiree receives a guaranteed monthly pension income for the rest of their lives.

However, the OPS also creates inter-generational equity issues, meaning the present generation has to bear the continuously rising burden of pensioners. This is because the pension liabilities keep increasing every year, and there is no clear plan on how to pay year after year in the future.

Here are some of the main concerns with the OPS: