OPS vs NPS: Retirement Scheme Comparison
The New Pension Scheme (NPS) and the Old Pension Scheme (OPS) are two distinct retirement benefit systems in India. While the OPS guarantees a defined pension based on salary and years of service, the NPS is a contribution-based scheme with market-linked returns. The OPS provides a stable retirement income but lacks flexibility, whereas the NPS offers investment choices but carries market risks. The decision between the two depends on an individual’s risk appetite and preference for a fixed or market-linked return on their retirement savings.
Which of the two offer maximum retirement benefit?
The National Pension System is open to both government employees and the citizens aged between 18 years to 60 years. On the other hand, the old pension scheme has been only designed for the government employees.
The government employees have been demanding the reintroduction of the Old Pension Scheme (OPS) though the new pension scheme under the National Pension System (NPS) comes with numerous benefits. Both the schemes have been designed to provide monthly pension to government employees. Some states, including Rajasthan, Himachal Pradesh, Jharkhand, Chhattisgarh and Punjab, have restored the old pension scheme.
However, the question arises whether the old pension scheme was really better than the National Pension System. Well, let’s have a quick check at the benefits provided by both and decide which one is better for the retired employees.
What is the Old Pension Scheme?
The Old Pension Scheme ensures that a retired government employee gets access to life-long stable income after retirement. Under the old pension system the retired government employees receive 50 per cent of their last drawn salary plus dearness allowance as pension every month. Moreover, they also get the benefits of revision in dearness allowance (DA) twice every year. The payout under OPS doesn’t require a deduction from salary during service years.
Benefits of Old Pension Scheme
- Ensures life-long stable income in the form of monthly pension
- Doesn’t need deductions from salary, thus, reducing the burden on employees.
- Pension income under OPS doesn’t attract any tax.
- Voluntary contributions to GPS can be used to create retirement corpus.
- Income received after retirement is tax-free.
- Disadvantages of Old Pension Scheme
- The old pension scheme is open only to the retired government employees.
What is the National Pension System (NPS)?
The National Pension System, which was introduced in 2004, is open to both government and private sector employees. The scheme was initially only available for government employees but in 2009 it was expanded to include any citizen in the age groups of 18 years to 60 years.
The Pension Fund Regulatory and Development Authority (PFRDA) has been implementing and regulating the NPS. The National Pension System is divided into Tier I and Tier II accounts. Investments in Tier I account can’t be withdrawn till the retirement age while Tier II account allows premature withdrawal.
Benefits of National Pension System (NPS)
- Tax benefits of up to Rs 1.5 lakhs can be availed under the Section 80 CCD (1) of the Income Tax Act.
- Provides benefits to both government and non-government employees.
- NPS Tier II account provides more liquidity as the deposits can be withdrawn whenever required.
- Disadvantages of National Pension System
- Requires a deduction from salary.
- Income received after retirement is taxable.
- NPS Tier I account funds can’t be withdrawn before you turn 60.
National Pension System vs Old Pension Scheme: Which one offers maximum benefits?
Both the NPS and OPS come with their set of benefits, however, the latter has one major drawback that it offers benefits to only government employees. On the other hand, NPS provides benefits to all citizens.
The NPS investment aids private sector salary earners in securing their future after retirement. In addition, NPS allows investors to avail tax benefits. The only benefit that makes OPS stand out is that it doesn’t require a deduction from salary. If you are not a government employee then NPS investment could be a better choice for you.
Source: https://www.zeebiz.com/personal-finance/news-new-pension-scheme-vs-old-pension-scheme-which-of-the-two-offer-maximum-retirement-benefit-stst-254753
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