With Elections Due in Gujarat, AAP and Congress Promise a Return to Old Pension Scheme

Table of Contents☰

Why in News?

With elections for the 182-member Gujarat Assembly to be held in December, the Aam Aadmi Party (AAP) and Congress are attempting to halt the BJP’s 27-year rule in the state with a range of poll promises.
One such promise is the restoration of the Old Pension Scheme (OPS).

OPS offers pensions to government employees on the basis of their last drawn salary. 50% of the last drawn salary.
The attraction of the Old Pension Scheme or ‘OPS’ lay in its promise of an assured or ‘defined’ benefit to the retiree. It was hence described as a ‘Defined Benefit Scheme’.
To illustrate, if a government employee’s basic monthly salary at the time of retirement was Rs 10,000, she would be assured of a pension of Rs 5,000.
Also, like the salaries of government employees, the monthly pay-outs of pensioners also increased with hikes in dearness allowance or DA announced by the government for serving employees.
The OPS was discontinued by the Central government in 2003.

The main problem was that the pension liability remained unfunded — that is, there was no corpus specifically for pension, which would grow continuously and could be dipped into for payments.
The Government of India budget provided for pensions every year; there was no clear plan on how to pay year after year in the future.
The ‘pay-as-you-go’ scheme created inter-generational equity issues — meaning the present generation had to bear the continuously rising burden of pensioners.

As a substitute of OPS, the NPS was introduced by the Central government in April, 2004.
This pension programme is open to employees from the public, private and even the unorganised sectors except those from the armed forces.
The scheme encourages people to invest in a pension account at regular intervals during the course of their employment.
After retirement, the subscribers can take out a certain percentage of the corpus.
- The beneficiary receives the remaining amount as a monthly pension, post retirement.
Nodal agency: Pension Fund Regulatory and Development Authority (PFRDA)

Every NPS subscriber is issued a card with 12-digit unique number called Permanent Retirement Account Number or PRAN.

The subscriber has to contribute a minimum of Rs. 6,000 in a financial year.
If the subscriber fails to contribute the minimum amount, his/her account is frozen by the PFRDA.

The Old Pension Scheme is a pension-oriented scheme. It offers regular pensions to employees during retirement. The pension amount is 50% of the last drawn salary by the employee.
- Thus, in OPS, the pension amount is constant.
On the other hand, the National Pension Scheme is an investment cum pension scheme.
NPS contributions are invested in market-linked securities, i.e., equity and debt instruments.
- Therefore, NPS doesn’t guarantee returns.
However, the investments, in NPS, are volatile and hence have the potential to generate significant returns.