As tens and thousands of central and state government employees from across the country gathered in the national capital’s sprawling Ramlila Maidan on Sunday to demand the restoration of the old pension scheme (OPS), the issue has taken a massive political turn, as they made it clear that it won’t support the ruling dispensation in the national elections next year for a third consecutive term if their demands are ignored.

The opposition Congress party has made it a big issue in the run-up to the assembly and Lok Sabha elections over the next few months. States like Rajasthan, Chhattisgarh, Jharkhand, Punjab, and Himachal Pradesh have already gone back to OPS following public demand. The National Pension System (NPS) was rolled out in 2004 as a replacement for OPS as part of the government’s reform strategy towards fiscal prudence and economic development. It was believed the NPS would considerably reduce the government’s fiscal burden and help divert much-needed resources towards developmental activities.

Scores of government employees in Maharashtra, Haryana and other states where the OPS haven’t applied have demanded its immediate restoration. Unlike OPS, in NPS, both the employee and the government must contribute towards the retirement fund.

What Is the National Pension System?

The National Pension System (NPS) was introduced by the central government to provide pensions to individuals after retirement. NPS is mandatory for all central and state government employees who joined service on or after January 1, 2004, except the armed forces. It is also available to all citizens, including those residing abroad, aged 18-70.

NPS is structured into Tier 1 and Tier 2 categories:

Tier 1: It is a retirement account in which regular contributions are made by the subscriber and the employer. The funds are then invested in the stock market as per the schemes you selected and decided by the fund manager. Withdrawals are allowed as per its exit rules. The minimum monthly and yearly contribution is Rs. 500 and Rs.1,000, respectively. It has a low annual maintenance cost (AMC), and switching to Tier II is restricted and subject to rules.

Tier 2: You can open this account if you have an active Tier 1 account. It allows unrestricted withdrawals and a minimum contribution of Rs 250. There is no restriction on minimum contribution in a year and zero AMC charge. Switching to Tier 1 is allowed at any time.

Difference Between OPS And NPS

1. Old Pension Scheme

In OPS, which assures life-long income post-retirement, employees receive a pension under a pre-determined formula equivalent to 50 per cent of the last drawn salary until their demise. Pensioners receive the pension with biannual revisions in dearness allowance (DA). OPS exclusively covers government employees.

2. National Pension System

In NPS, employees contribute 10 per cent of their salary, and the government contributes 14 per cent. The funds are invested in a pension fund with a diversified portfolio of government bills, bonds, shares and debentures. Subscribers can withdraw up to 60 per cent of the invested amount upon retirement at 60, but they have to contribute the remaining 40 per cent to purchase an annuity.

Benefits Under NPS

You can access the NPS account through its web portal or mobile app anywhere and anytime, offering convenience. It is flexible, simple, tax-efficient, well-regulated, and transparent. In addition, NPS is low-cost and offers the power of compounding to your investments.

Finally, the enormous public outburst at the Ramlila Ground could indicate the concerns that NPS subscribers may not even get returns at par with OPS, unlike what they initially expected, as the invested corpus will depend on the market performance.