Unified Pension Scheme: Pension planning has always been a big issue for government employees in India. Before 2004, the Old Pension Scheme (OPS) was applicable for government employees, but from January 1, 2004, the central government implemented the New Pension Scheme (NPS). This change affected millions of employees, especially those who joined the job after 2004 and are now retiring. What are the pension options for such employees now? We will understand this in detail in this article.

Unified Pension Scheme: Current pension option for employees who retired after 2004

Government employees recruited after 2004 do not get the benefit of Old Pension Scheme (OPS), but they are given pension under National Pension System (NPS). Let us understand what options are available for them:

(1) National Pension System (NPS)

• Government employees appointed after 2004 are required to mandatorily contribute under NPS.
• This involves a 10% deduction from the employee's monthly salary, and the government also makes an equal contribution.
• At the time of retirement, the employee is allowed to withdraw up to 60% of the accumulated corpus in a lump sum, while it is mandatory to purchase an annuity plan for the remaining 40% of the corpus.
• Annuity plan means that the employee will keep receiving a fixed amount every month as pension.

(2) Lump Sum Withdrawal

• At the time of retirement, the employee can withdraw up to 60% of the funds standing to his NPS account.
• The remaining 40% has to be used to purchase a pension annuity.
• If an employee wants to exit NPS before age 60, he can withdraw only 20% of the amount.

(3) Annuity Plan

• It is mandatory to invest 40% of the amount in annuity after retirement.
• Through annuity, the employee keeps receiving pension on monthly or quarterly basis.
• Annuity plan can be taken through companies like LIC, SBI Pension Fund, HDFC Pension.

Is it possible to return to Old Pension Scheme (OPS)?

• States try to restore OPS: Some state governments (Rajasthan, Chhattisgarh, Punjab, Himachal Pradesh) have announced restoration of Old Pension Scheme (OPS) for their employees.
• Demand for OPS: Employees unions at central and state level are continuously demanding restoration of OPS.
• Central Government's stance: The Central Government is currently in favor of continuing NPS and does not seem to be in the mood to restore OPS.

Comparative Analysis of OPS vs NPS

SubjectOld Pension Scheme (OPS)New Pension Scheme (NPS)

Contribution The employee does not have to make contributions The employee has to contribute 10% of his salary

Government contributions The government gives full pension Government contributes 10%

Pension Amount Receives 50% of last salary Pension amount depends on market investment

Market Risk No Yes, because it is linked to the stock market

tax benefit The entire pension is tax free is partially taxable

Is there any other option except NPS?

(1) Non-government pension schemes

If an employee wishes to make investments other than NPS, there are a few other options he can choose from:

• Public Provident Fund (PPF): It has a lock-in period of 15 years and is tax-free.
• Mutual Fund SIPs: Long-term SIPs can be a good option for retirement.
• Atal Pension Yojana (APY): People between 18 to 40 years can join it and get pension after the age of 60.

(2) Voluntary Provident Fund (VPF)

• The employee can make additional contributions to the EPF account.
• It gives higher returns and is guaranteed by the government.

Some real-life examples

Case Study 1: Situation of a government teacher

Ramlal was a government teacher who joined the job in 2006. When he retired in 2023, he realised that his pension fund was not enough for him. He had also invested in PPF and mutual funds, which gave him additional funds.

Case Study 2: Experience of a railway employee

Sita Devi was employed with the Indian Railways and retired in 2022. She received less pension from NPS than she expected, but she had already invested in VPF and FD, which kept her financial situation balanced.

What should employees do?

If you retired after 2004 or are retiring soon, here's what you should consider:

• Check your NPS account balance and estimated pension amount from time to time.
• Invest in other pension options, like PPF, mutual fund SIPs, and VPF.
• Keep an eye on the state government's policies regarding OPS.
• Understand the annuity plan carefully and choose the best option.

NPS is the main pension scheme for government employees who retired after 2004, but it is important to understand its limitations. If you are waiting for the restoration of OPS, then it will be important to keep an eye on the decisions of the state governments. You can make your retirement life secure by adopting other investment options.

In today's time, it is not wise to depend only on government pension, so secure your future by making proper financial planning!

PC:UlbJammu.com