OPS vs NPS: Two Congress-ruled states, Rajasthan and Chhattisgarh, have already decided to implement the OPS. Jharkhand, too, decided to revert to the old pension scheme. So, if AAP-led Punjab takes the same decision, it will become the third state to do so.
Punjab Chief Minister Bhagwant Mann on Friday said that the state cabinet has approved the reimplementation of the old pension scheme, which was discontinued in 2004. In another decision of the cabinet, a meeting of which was held here under his chairmanship, Mann said a notification to fix sugarcane rate at Rs 380 per quintal has also been approved.
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Asked about the Old Pension Scheme, Mann, who was addressing a news conference after the cabinet meeting, said, "OPS has been approved by the cabinet. Details will be given. Many employees will be benefited under the old pension scheme. Notification has been issued." The old pension scheme, under which the entire pension amount was given by the government, was discontinued in the country from April 1, 2004.
In the cabinet meeting held nearly a month ago, the Punjab government had decided to restore the scheme for its employees, which has been their major demand.
The Reserve Bank of India (RBI) and the 15th Finance Commission have taken of the “potential sources of fiscal risks” for states, which include “relaunching of old pension scheme in some states”, highlighted Comptroller and Auditor General of India (CAG) Girish Chandra Murmu on Thursday.
News18 reported that the Aam Aadmi Party (AAP) government was in a hurry to issue the notification due to approaching assembly elections in Gujarat next month, where party is expected to perform well.
Announcing this as a Diwali gift, Punjab Chief Minister Bhagwant Mann earlier said, "We have taken an in-principle decision to this effect in a cabinet meeting. This will benefit lakhs of employees."
State Finance Minister Harpal Singh Cheema had last month said employees will be given the option to join the old pension scheme.
Briefing reporters about other decisions of the cabinet, Mann said, "In today’s cabinet meeting, the notification regarding Rs 380 per quintal sugarcane rate has been approved, which is highest in the country."
"We have cleared all outstanding dues of sugarcane from farmers," he further said. All sugar mills will start crushing sugarcane from November 20.
What's going on in states?
The Congress had raised OPS as one of its key promises ahead of the polls in Himachal Pradesh last week. Two Congress-ruled states, Rajasthan and Chhattisgarh, have already decided to implement the OPS. Jharkhand, too, decided to revert to the old pension scheme.
With the implementation of this scheme, AAP-led Punjab has become the third state to do so. It's vital to note that the state was among the first in India to adopt the New Pension Scheme (NPS), which got implemented on April 1, 2004.
Talking particularly about Gujarat, the government there had introduced the new contributory pension scheme for employees joining the service on or after April 1, 2005. As per its notification, it will make a matching contribution of 10 percent of the basic pay plus dearness allowance (DA) contributed by the employees in the NPS fund.
Under the Centre's scheme, the government will contribute 14 percent against an employee's contribution of 10 percent of his/her salary and DA with effect from April 1, 2019.
After protests by employees in Gujarat, the state government had said the new pension will not be applicable to those employees who had joined duty before April 2005. It also promised to increase its contribution in the fund to 14 per cent from the 10 per cent earlier.
The employees have staged massive agitations against the government in Gujarat while demanding restoration of the OPS because they believe the New Pension Scheme is not in the interest of the retiring employees.
With the BJP government not acceding to the demands of the employees, the Congress and the Arvind Kejriwal-led AAP have assured to bring back the OPS, in one of their most emphatic poll promises.
In Himachal Pradesh, Congress leader Rajiv Shukla said if his party comes to power, the first cabinet decision will be to implement the old pension scheme.
Asserting the old pension scheme is the need of the government employees, he accused the ruling BJP of trying to mislead the people on the issue.
There are about 2.5 lakh government employees in the state, and out of them 1.5 lakh are covered under the New Pension Scheme. There have been protests earlier by employees' associations against the new scheme in Shimla, Mandi, Kangra and Solan.
Who are opposing and who are favouring OPS?
Recently, Former NITI Aayog Chairman Arvind Panagariya said that states would not be able to afford the financial burden of OPS.
According to Indian Express report, he said that any state can't afford to do that because the liability will be very large.
"They will have to finance it from the tax revenue. But there are no tax revenues," he was quoted as saying in the report.
Praveen Chakravarty, who heads the Data Analytics department of the Congress, also took to Twitter questioning OPS.
Out of 6.5 crore (65 mn) people in Gujarat, about 3 lakh (300k) are in govt service.The old pension scheme will cost roughly 15% of tax revenues.Why should the top 0.5% of people get 15% of all taxpayers' money as post-retirement pension?@APanagariya is right to question. pic.twitter.com/2J2QRc46sC— Praveen Chakravarty (@pravchak) November 15, 2022
Soon after Chakravarty's tweet, Congress General Secretary (Communications) Jairam Ramesh made it clear that it was not the party's position.
Later, Chakravarty defended his post and said that he was only citing some data and there was no need to 'belabour or exaggerate' it as internal strife.
Congress’ main campaigner Priyanka Gandhi Vadra, in her rallies, had earlier promised to revert back to OPS. Former party chief Rahul Gandhi too had tweeted in favour of OPS.
On the other hand, Bharatiya Janata Party (BJP) has been opposing it.
So, what exactly is the old pension scheme?
In the old pension regime, pension was 50 percent of the last drawn salary of the employee and the entire amount was paid by the government.
It was discontinued on April 1, 2004, and replaced with the National Pension Scheme (NPS).
How is it different from NPS?
NPS, a government-run investment scheme, gives the subscriber the option to set the preferred allocation to different asset classes. The returns in NPS are not guaranteed and depend on the performance of the asset allocation by the subscriber based on his/her risk-taking capability during the employment tenure.
This table shows the basic difference between OPS and NPS:
|Basis of Difference||NPS||OPS|
|Returns||The returns are not guaranteed and constant as money is invested in market-linked securities.||OPS offers pensions to government employees on the basis of their last drawn salary, which is 50 percent of the last drawn salary. This is fixed.|
|Tax Benefits||Annual investments up to Rs 1.5 lakh are tax-deductible under Section 80C of the Income Tax Act, 1961. Additional annual investments up to Rs 50,000 are tax-deductible under Section 80CCD (1B) of the Income Tax Act, 1961.||No tax benefits are applicable.|
|Tax on pension amount||On retirement, NPS provides a pension fund that is 60 percent tax-free when redeemed. The remainder, which is 40 percent, has to be invested in annuities. This is taxable.||Income from OPS does not attract any tax.|
|Eligibility||All Indian citizens between 18 and 65 years are eligible.||Only government employees are eligible.|
Why are people protesting against NPS?
OPS based on years of service and pension was based on last basic salary plus dearness allowance. In this, an employee was guaranteed the right of pension as half of the last basic salary plus dearness allowance at the time of retirement, if the service was not less than 10 years. At the time of retirement and in case of in-service death, an employee or his/her family was given economic support.
The NPS, on the other hand, protestors believe, is based on long-term investment fund ideology and it could be better in the case of more than 30 years’ service. But, in case of less years’ service, due to lower corpus, the pension is not sufficient for the retiree’s survival.
Which is better?
OPS, as mentioned above, is a pension scheme and offers a regular pension. This is fixed, which is not the case in NPS.
The investments may also be volatile in NPS. Hence, experts believe that NPS is suitable for those willing to take certain risks. However, there are several benefits of NPS which must be considered. It allows one to plan the retirement corpus and offers tax benefits. At times, it can offer decent returns.
On the other hand, OPS is best suited for the ones who are risk-averse and want decent funds at retirement.
"OPS has been approved by the cabinet. Details will be given. Many employees will be benefited under the old pension scheme. Notification has been issued,” Punjab CM Bhagwant Mann said in a conference.
(Edited by : Anushka Sharma)
First Published: IST