Demand for restoration of Old Pension Scheme

Demand for restoration of Old Pension Scheme

Why in the News?

Thousands of Central govt. and Central PSU employees staged a protest rally in Delhi seeking for the restoration of the Old Pension Scheme.

The Old Pension Scheme:

1. It is a retirement scheme approved by the central government that provides monthly pension to the beneficiaries till the end of their life service. 
2. The amount of pension released monthly shall be equal to half of the last drawn salary by an individual before retirement.
3. Also called as Defined Contribution scheme.
4. In addition to the Pension amount, the beneficiaries receive Dearness Allowance that is fixed on the basis of price rise/ inflation in the economy.
5. The entire amount of the Old Pension was paid by the government.
6. Only government employees are eligible to receive pension under the OPS after retirement.

New Pension Scheme (NPS):

1. Under the new retirement scheme introduced in 2003, the beneficiaries can withdraw 60% of the amount invested after retirement.
2. It seeks to provide old age income security in a fiscally sustainable manner and also make prudential investments in productive sectors of the economy by channelizing the small savings.
3. The scheme was made mandatory for all new recruits to the Government service (except armed forces) with effect from January 1, 2004,
4. The scheme has also been rolled out for all citizens (private sector employees) for adoption on voluntary basis with effect from May 1,2009.
5. NPS is a contributory pension scheme under which employees contribute 10% of their salary (basic + dearness allowance). The government contributes 14% towards the employees’ NPS accounts.
6. In NPS, employees contribute money from their salary during their employment tenure. The amount is invested in market-linked instruments.

Why there was a shift from OPS to NPS?

1. The OPS was a financial burden to the government as it laid the burden of employees’ pensions on the states, risking their financial security.

For instance, Himachal Pradesh spends almost 80% for pensions as a percentage of the state’s own tax revenues.

2. Employees retiring at 60 with an average span of 80 years of age will receive pension for 20 days, and after his/her death the spouse shall receive a portion of the pension which lays massive burden on the government.
3. The NPS provided advantages of,
   1. The small savings channelization to investments in productive sectors is market-linked and promotes growth of the economy.
   2. It involves contribution from both employers and employees, thus lessening the burden on the govt.

Why Employees are protesting against NPS?

• Despite the contribution of 10% by the NPS employees of their wages every month for their entire service receive a very pension much lower than the OPS.
• The pension under NPS is static and there is no dearness relief to compensate the inflation as available in the OPS.
• There is no GPF advantage and the amount of pension is not fixed as the scheme is market-linked and based on returns.

Source URL: Govt. staff seek restoration of old pension scheme (thehindu.com)