The Punjab government had recently said that it is thinking of implementing the Old Pension Scheme (OPS) for the employees. Experts believe that the purpose of such promises is only to please the people, as it will increase the burden on the exchequer. After all, the government uses the taxes of the people for its own expenses.
If this plan of the Punjab government turns into reality, then it will be the third state to implement the Old Pension Scheme. Earlier, Rajasthan and Chhattisgarh have announced this. Some employees unions are also in favor of implementing OPS instead of New Pension Scheme (NPS).
Sumit Shukla, MD & CEO, Axis Pension Fund said, “The Defined Benefit System (OPS) has been discontinued long back in many countries. Governments across the world have suffered huge losses due to rising pension liabilities. The Future of NPS Retirement Those who have joined the job after January 1, 2004 will understand the benefits of NPS after retirement.”
Let us try to know about NPS and OPS in detail. We will also see how it affects government employees and pensioners.
What is Old Pension Scheme for Government Employees?
The pension of people who joined government jobs before January 1, 2004, is managed under the Old Pension Scheme. Its formula is fixed. On retirement, the employee gets 50 percent of the last salary (Basic + DA) or the average amount of salary received in the last 10 months of service as pension. Which of the two will be beneficial for the employee, he will get it in the form of pension. The condition is that the employee should have worked for at least 10 years.
Virjesh Upadhyay, former member of EPFO’s Central Board of Trustees, said, “DA is linked to inflation and hence it can increase. Hence the pension liability of the government will also increase.”
Praleen Bajpai, founder of Phoenix Research, said that after the death of a pensioner, family pension is received by his family member. Second, in OPS, the employee does not have to contribute towards pension. Upadhya said that it should be kept in mind that even now the government contributes to the pension fund. Earlier the employer’s contribution was hidden.
In view of the fixed amount received as pension after retirement, no deduction for it from salary and financial security for the family after the death of the pensioner, many employees are demanding to re-implement OPS. .
What was the reason for implementing the New Pension Scheme of the government?
The Central Government has implemented the New Pension Scheme for its employees (except military forces) who have started service after January 1, 2004. After that almost all the states except Tamil Nadu and West Bengal also implemented the new system.
Suresh Sadagopan, Founder, Ladder7Financial Advisors, said, “The decision was taken to introduce the new system of pension keeping in view the increasing liabilities of the governments. OPS was not beneficial for the exchequer. The re-implementation of OPS would have huge disadvantages.”
According to SBI’s research report, which came out in March this year, OPS is an unfunded pension scheme, in which current revenue is used to pay pension. The increase in life expectancy has also increased the burden on pension payments.
How does NPS work?
In this, government employees contribute 10 percent of their basic salary to the retirement fund. The employer contributes up to 14 per cent in this. NPS is also open to private sector employees. This is voluntary, although some rules have been changed.
There are a variety of asset class options for private employees. These include equity, corporate debt, government securities and alternative assets. The framework of government employees is more complex than that of private employees. For example, private employees are allowed to invest up to 75 per cent in equities, while it is 50 per cent in case of government employees.
On retirement, an employee can withdraw 60 per cent of his corpus in a lump sum. It is necessary to buy an annuity plan from the remaining 40 percent. With this annuity plan, the employee gets pension after retirement. Where fixed payment is guaranteed in OPS, the returns of the fund in NPS are affected by the volatility in the stock market.
Considering the long term nature of NPS, it is good for the employee as well as it also does not leave the liability of pension payment on the government.