Old Pension Scheme

Old Pension Scheme

On the return to the old pension scheme

In News: The Himachal Pradesh state government has pledged to reinstate the Old Pension Scheme. The fourth state to do so will be Himachal Pradesh. This topic is related to daily current affairs for the UPSC examination. 

Relevance for Prelims: New Pension Scheme: OPS, PFRDA.

Relevance for Mains: GS -2, OPS, National Pension Scheme.

Old pension scheme (OPS)

  • The scheme guarantees post-retirement a lifetime of income.
  • Employees under the previous plan receive a pension based on a pre-established formula that is equal to 50% of the last wage received. Additionally, they benefit from the twice-yearly modification of the Dearness Relief (DR).
  • There was no salary deduction and the compensation is predetermined. Additionally, the General Provident Fund was a provision of the OPS (GPF).
  • Only Indian government employees have access to GPF. In essence, it permits all government workers to pay a portion of their salaries into the GPF. At the time of retirement, the employee receives the complete amount that has accumulated over the course of their employment.
  • The cost of the pension is covered by the government. The scheme was discontinued in 2004.

New Pension Scheme (NPS)

  • The National Pension System was formed by the Central Government with effect from January 2004. (except for armed forces).
  • The New Pension Scheme, which was notified in December 2003, was developed using the OASIS report.
  • The Union Cabinet approved changes to the NPS in 2018–19 for the benefit of central government employees who are covered by the scheme. These changes were made to streamline the NPS and make it more appealing.
  • The government began the NPS as a measure to get rid of its pension responsibilities.
  • The Central Civil Services (Pension) Rules, 1972 were amended in response to the establishment of NPS.
  • After retirement, people can use a portion of their pension money as a lump sum withdrawal and the remainder to buy an annuity for a regular income.


  • PFRDA (Pension Fund Regulatory and Development Authority) is the authority in charge of implementing and regulating NPS in the nation.
  • All assets under the NPS are officially owned by the National Pension System Trust (NPST), which was established by PFRDA.


  • All Indian nationals (including NRIs) between the ages of 18 and 70 are eligible to join the NPS under the All-Citizens Model.
  • Employees contribute their salaries to their pension corpus as part of a participatory scheme, and the government matches their contributions. The funds are then invested through Pension Fund Managers in specified investment plans.
  • Government employees who participate in this NPS contribute 10% of their base pay, and their employers may also contribute up to 14%.
  • According to the Finance Ministry, Central government personnel has the choice of Investment Pattern and Pension Funds (PFs) as of 2019.
  • 40% of the corpus is invested in annuities, which are taxed, and the remaining 60% can be withdrawn tax-free upon retirement.
  • Even private individuals can opt for the scheme.


  • The scheme’s return-based nature and market linkage are its main drawbacks. Simply said, the payout is unpredictable.
  • In contrast to OPS, the NPS mandates that employees deposit 10% of their basic pay as well as the dearness allowance.
  • The pension amount is not fixed, and there is no GPF benefit.

Comparison between the old pension scheme and the new pension scheme



Old pension scheme


New pension scheme




10% of special pay + basic pay + other allowances  

All contributions are included along with dearness allowance




No such body PFRDA
Public coverage Only central government employees Anyone from age of 18 to 55
Fund management Managed by provident fund Six fund managers
Charges No extra charges are applicable Fixed as well as variables charges applicable

UPSC Previous Year Questions (PYQ)

Who among the following can join the National Pension System (NPS)? (2017)

(a) Resident Indian citizens only.

(b) Persons of age from 21 to 55 only.

(c) All State Government employees joining the services after the date of notification by the respective State Governments.

(d) All Central Government employees including those of Armed Forces joining the services on or after 1st April 2004.

Ans: (c)


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Plutus ias current affairs eng med 17th Dec 2022

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