Pension Scheme

04 Oct 2023 3 mins Download PDF

Pension Scheme

The Old Pension Scheme:

1. It is a retirement scheme approved by the central government that provides monthly pension to the beneficiaries till the end of their life service. 
2. The amount of pension released monthly shall be equal to half of the last drawn salary by an individual before retirement.
3. Also called as Defined Contribution scheme.
4. In addition to the Pension amount, the beneficiaries receive Dearness Allowance that is fixed on the basis of price rise/ inflation in the economy.
5. The entire amount of the Old Pension was paid by the government.
6. Only government employees are eligible to receive pension under the OPS after retirement.

New Pension Scheme (NPS):

1. Under the new retirement scheme introduced in 2003, the beneficiaries can withdraw 60% of the amount invested after retirement.
2. It seeks to provide old age income security in a fiscally sustainable manner and also make prudential investments in productive sectors of the economy by channelizing the small savings.
3. The scheme was made mandatory for all new recruits to the Government service (except armed forces) with effect from January 1, 2004,
4. The scheme has also been rolled out for all citizens (private sector employees) for adoption on voluntary basis with effect from May 1,2009.
5. NPS is a contributory pension scheme under which employees contribute 10% of their salary (basic + dearness allowance). The government contributes 14% towards the employees’ NPS accounts.
6. In NPS, employees contribute money from their salary during their employment tenure. The amount is invested in market-linked instruments.