Old Pension Scheme

Old Pension Scheme

Old Pension Scheme

#GS II Government Policies and Interventions


  • Certain Central government employees who applied for posts posted before December 22, 2003, the day the National Pension System (NPS) was notified but joined the service in 2004, the year the NPS went into effect, were given a one-time opportunity to move to the Old Pension Plan by the government (OPS).


  • Lifetime post-retirement income is ensured by the plan.
  • In accordance with the prior scheme, employees were given a pension that was equal to 50% of their final paycheck. Also, they gain from the Dearness Relief’s biannual adjustment (DR). The remuneration was predetermined, and there was no salary deduction. Moreover, the OPS included a provision for the National Provident Fund (GPF).
  • Only employees of the Indian government have access to GPF. Basically, it allows all government employees to contribute a percentage of their income to the GPF. The full sum that has accrued during the employee’s employment is paid to them at the time of retirement.
  • The government pays the pension’s expenses. In 2004, the programme was discontinued.


  • The main problem was that the pension debt was still unfunded, which meant that no corpus had been established specifically for pensions that would increase over time and be available for payments.
  • The Indian government provided money for pensions in its annual budget, but there was no clear plan for how those payments would be made in the future.
  • The OPS was unsustainable as well. To begin with, pension liabilities would increase as seniors’ benefits such as current employee salaries or pensioners who benefited from indexation, or so-called “dearness relief,” increased annually.
  • Also, due to an increase in longevity, better medical facilities would result in longer payouts.
  • This has resulted in a large pension load for the Union and state governments.
  • What Efforts Were Undertaken to Address Important Issues?
  • The Union Ministry of Social Justice and Empowerment requested a report on the Old Age Social and Income Security (OASIS) initiative in 1998. An expert group submitted the report in January 2000.
  • The primary target of OASIS was the unorganised sector workers who lacked retirement income security.
  • Investors should think about three main fund categories: increasing, balanced, and safe, per the OASIS research. Six various fund managers will present these funds.
  • The balance would be invested in corporate or governmental bonds. Everyone would have their own retirement account and be required to make at least Rs. 500 in yearly contributions.
  • After retirement, at least Rs 2 lakh would be withdrawn out of the retirement account to purchase an annuity.
  • An annuity provider invests the money throughout the course of the person’s life and provides a set monthly income (Rs 1,500 at the time the report was written).
  • What was the origin of the New Pension Scheme?
  • The OASIS study served as the foundation for the New Pension Plan, which was unveiled in December 2003.
  • The National Pension System (NPS) was adopted by the Central Government in January 2004. (except for armed forces).
  • To assist central government employees who are covered by the programme and to streamline and strengthen it, the Union Cabinet approved changes to the NPS for 2018–19.
  • The NPS was established by the government as a means of escaping its pension obligations.
  • The early 2000s research that suggested India’s pension debt was out of control were highlighted in a news item.
  • In reaction to the creation of NPS, the Central Civil Services (Pension) Rules, 1972 were modified.
  • In order to receive a regular income after retirement, people can use some of their pension funds as a lump sum withdrawal and the remaining funds to buy an annuity.
  • NPS implementation is overseen and carried out by the country’s PFRDA (Pension Fund Regulatory and Development Authority).
  • Official ownership of all NPS assets is held by the PFRDA-created National Pension System Trust (NPST).


  • Any Indian citizens (including NRIs) between the ages of 18 and 70 are eligible to enrol in the NPS under its All-Citizens Model.
  • As part of a participation programme, employees make payroll deductions for their pension corpus, and the government matches those deductions. The funds are then invested in the designated investment plans by Pension Fund Managers.
  • The 10% of base pay that government employees who take part in this NPS contribute, as well as up to 14% from their employers.
  • As of 2019, Central government employees have the option of Investment Pattern and Pension Funds (PFs), according to the Finance Ministry.
  • 60% of the corpus can be withdrawn tax-free after retirement, whereas 40% is invested in annuities, which is taxed.
  • The programme is open to everyone, including private individuals.
  • NPS issues: Unlike the OPS, the NPS requires employees to contribute 10% of their basic income and the dearness allowance.
  • There is no GPF benefit and the pension amount is not fixed.
  • The primary shortcomings of the plan are its return-based structure and market linkage. The reward is uncertain, to put it simply.

Source The Hindu