Old Pension Scheme
About:
- The programme offers a lifetime post-retirement income guarantee.
- Under the former model, workers earned a pension that was equivalent to 50% of their final salary. Additionally, they get from the Dearness Relief biennial adjustment (DR). Due to the fact that the pay was fixed, there was no salary deduction. The General Provident Fund was also a part of the OPS (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 accumulated during the employee’s time working for the company is paid to them at the time of retirement.
- The government pays the pension’s expenses. In 2004, the show was cancelled.
Concerns:
Insufficient Pension Funds:
- The largest problem was the absence of a corpus built specifically for pensions that would increase over time and be usable to make payments.
- The Indian government provided money for pensions in its annual budget, but there was no clear plan for how these payments would be made in the future.
Unsustainable:
- The OPS could not be kept up. For starters, pension liabilities would increase in tandem with senior benefits like retiree benefits from indexation or so-called “dearness relief” or annual salary increases for existing employees.
- A growth in longevity driven on by enhanced medical facilities would also result in longer rewards.
- This has resulted in a large pension load for the Union and state governments.
What Efforts Were Made to Address Complementary Issues?
- The Union Ministry of Social Justice and Empowerment requested a report on the Old Age Social and Income Security (OASIS) programme in 1998. A group of professionals assembled a study, which they submitted in January 2000.
- The primary focus of OASIS was on workers in the unorganised sector who lacked retirement income security.
- Investors should take into account the three main fund types of growing, balanced, and safe, according to OASIS research. Six different fund managers will present these funds.
- The leftover money would be used to buy corporate or governmental bonds. Everyone will be required to register a retirement account and make annual contributions of at least Rs. 500.
- After retirement, at least Rs 2 lakh would be withdrawn out of the retirement account to purchase an annuity.
- An annuity provider invests the funds for the duration of the person’s life and pays a fixed monthly income (Rs 1,500 at the time the report was written).
What was the origin of the New Pension Scheme?
About:
- The OASIS research served as the foundation for The New Pension Scheme, which was unveiled in December 2003.
- The National Pension System was adopted by the Central Government in January 2004. (NPS). (Without include the armed forces).
- To benefit central government employees who are covered by the programme and to streamline and reinforce it, the Union Cabinet adopted changes to the NPS for 2018–19.
- The NPS was established by the government to escape its pension liabilities.
- The early 2000s study that showed India’s pension debt was out of control was highlighted in a press piece.
- The creation of NPS led to changes to the Central Civil Services (Pension) Rules, 1972.
- For a consistent income after retirement, retirees can choose to take a lump sum payout from a portion of their pension and use the remaining funds to buy an annuity.
Implementation:
- PFRDA is the organisation in charge of adopting NPS and managing its management in the country (Pension Fund Regulatory and Development Authority).
- All NPS assets are legally owned by the National Pension System Trust, which was created in accordance with PFRDA (NPST).
Features:
- All Indian citizens (including NRIs) between the ages of 18 and 70 are eligible to join the NPS under its All-Nationals Model.
- As part of a participation programme, employees make payroll deduction contributions to their pension corpus, and the government matches those contributions. The monies are subsequently invested by pension fund managers according to the chosen investment plans.
- Government employees who take part in this NPS are expected to contribute up to 14% of their employers’ contributions in addition to 10% of their basic pay.
- The Finance Ministry states that starting of 2019, Central Government employees will have the choice of Investment Pattern and Pension Funds (PFs).
- In contrast to 40% of the corpus that is invested in annuities, which is taxed, 60% of the corpus can be withdrawn after retirement tax-free.
- Private persons are welcome to participate in the programme as well.
NPS concerns consist of:
- The NPS, as opposed to the OPS, requires employees to contribute 10% of their base salary and dearness allowance.
- There is no GPF benefit and the pension amount is not fixed.
- The fundamental flaws of the strategy are its market linkage and return-based structure. The reward is questionable, to put it simply.
