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Old Pension Scheme vs New Pension Scheme

In News

  • Recently, some of the political parties are promising to switch to the Old Pension Scheme.

Comparison between the Old and New system 

  • Old System
    • Pension to government employees at the Centre as well as states was fixed at 50 per cent of the last drawn basic pay.
  • New System
    • New pension system came into effect for those joining government services from January 1, 2004.
    • It laid in its promise of an assured or ‘defined’ benefit to the retiree. 
    • It was hence described as a ‘Defined Benefit Scheme’.
    • Example – 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.
      • The monthly payouts of pensioners also increased with hikes in dearness allowance or DA announced by the government for serving employees.
    • What is DA?
      • It is calculated as a percentage of the basic salary.
      • It is a kind of adjustment the government offers its employees and pensioners to make up for the steady increase in the cost of living.
      • DA hikes are announced twice a year, generally in January and July.

NOTES

  • Old Age Social and Income Security (OASIS) project
    • In 1998, the Union Ministry of Social Justice and Empowerment commissioned a report for an Old Age Social and Income Security (OASIS) project.
    • It was formed under the S A Dave committee.  
    • The OASIS project was not meant to reform the government pension system but its primary objective was targeted at unorganised sector workers who had no old age income security.
  • Employees’ Provident Fund (EPF) or the Employee Pension Scheme (EPS)
    • Taking the 1991 Census numbers, the committee noted that less than 11 percent of the estimated total working population of 31.4 crore, had some post-retirement income security; this could be government pension, Employees’ Provident Fund (EPF), or the Employee Pension Scheme (EPS). 

The rest of the workforce had no means of post-retirement economic security.

 

New Pension Scheme

  • It was the NDA government under A B Vajpayee that took up the gauntlet on pension reform. 
  • The New Pension System proposed by the Project OASIS report became the basis for pension reforms and what was originally conceived for unorganised sector workers, was adopted by the government for its own employees.
  • The NPS was for prospective employees; it was made mandatory for all new recruits joining government service from January 1, 2004.
  • Contributions: 
    • The defined contribution comprised 10 percent of the basic salary and dearness allowance by the employee and a matching contribution by the government this was Tier 1, with contributions being mandatory.
    • In 2019, the government increased its contribution to 14 percent of the basic salary and dearness allowance.
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