New Delhi: For government employees, a post-retirement pension is a significant benefit. The government has periodically modified its pension schemes. Previously, the Old Pension Scheme (OPS) was in effect. Subsequently, the National Pension System (NPS) was introduced and linked to the stock market. However, there has been a long-standing demand for the restoration of the Old Pension Scheme, with lakhs of government employees awaiting its return. The central government has now addressed this issue in Parliament, clarifying that there are currently no plans to bring back the OPS. The government states that doing so would place an immense burden on the public exchequer.
In response to a question raised in the Lok Sabha, Union Minister of State for Finance Pankaj Chaudhary stated that the central government is not considering restoring the Old Pension Scheme. Implementing the OPS would lead to a substantial increase in government expenditure in the coming years; consequently, there is no proposal to restart it.
The Old Pension Scheme was applicable to all government employees before 2004. It was a defined-benefit scheme that provided a lifetime pension based on the employee’s last drawn salary and length of service. The NPS was introduced in 2004 to replace the Old Pension Scheme. Subsequently, the Central Government introduced the Unified Pension Scheme (UPS), effective from April 1, 2025. Central government employees have the option to either remain in the NPS as before or switch to the UPS.
The OPS promised retired employees a pension amounting to 50% of their last drawn salary.
Pensioners also benefited from revisions to their allowances twice a year.
In the event of a pensioner’s death, their family continued to receive pension benefits.
Under the OPS, employees were not required to make any contribution from their salaries; the government bore the entire cost of the pension.
The OPS placed a significant burden on the government exchequer; consequently, it was discontinued in 2004 and replaced by the National Pension System (NPS).
The National Pension System (NPS) was launched by the Government of India in 2004. It is a long-term retirement investment scheme that offers not only post-retirement financial security but also opportunities for tax savings and market-linked growth. The scheme is regulated by the Pension Fund Regulatory and Development Authority (PFRDA). Initially restricted to government employees, it was opened to all Indian citizens in 2009. Any Indian citizen aged between 18 and 70 years can open an NPS account. Salaried individuals, business owners, freelancers, and the self-employed are all eligible to participate.
NPS was launched as both a pension scheme for government employees and an investment plan.
Under NPS, employees can invest in various schemes through multiple banks, financial institutions, and private companies. A total of nine pension fund managers—including banks like ICICI, SBI, and HDFC, as well as LIC—provide these schemes.
Despite the high-risk nature of the investments, returns are capped at around 15%; there is also a possibility of incurring losses.
Under NPS, 10% of the employee’s salary and Dearness Allowance (DA) is deducted. The government also contributes an amount equal to 14% of the employee’s salary into their fund. Employees can withdraw a portion of this fund at any time.
Withdrawals of up to 60% of the fund are tax-free. The remaining 40% is invested in an annuity plan. Since these funds are invested in the stock market, the value is subject to market fluctuations—rising or falling accordingly.
After accounting for potential fluctuations in this 40% portion, the remaining total corpus provides the employee with a regular income after retirement.
One can start investing in NPS with as little as Rs 1,000 per month; there is no upper limit on the investment amount.
It offers tax relief of up to Rs 2 lakh annually. The scheme can be continued until the employee reaches the age of 65.
For breaking news and live news updates, like us on Facebook or follow us on Twitter and Instagram. Read more on Latest Business News on India.com.
