The contentious issue of the pension scheme for government employees and teachers continues to hang fire with the unrelenting employees making it categorical that they would not settle for anything less than reinstatement of the Old Pension Scheme (OPS), promised by Andhra Pradesh Chief Minister Y.S. Jagan Mohan Reddy in the past.
The pension trouble started in December 2003 when the BJP-led government at the Centre scrapped the OPS and introduced the National Pension System (NPS), also known as New Pension Scheme or Contributory Pension Scheme (CPS), with effect from April 1, 2004.
What is the NPS?
The employee gets four investing options that include equity, corporate debt, government bond and alternative investment funds. The savings are pooled into one pension fund which is invested by professional fund managers regulated by the Pension Fund Regulatory and Development Authority (PFRDA), as per the approved investment guidelines.
The NPS comprises two categories of accounts _ Tier I, which does not allow premature withdrawal, and Tier II, which can be used for withdrawals before maturity. The minimum contribution for any individual is ₹1,000 for both the accounts.
The NPS offers tax benefits and once it matures at the age of 60 years, 60 % of the proceeds can be withdrawn as lump sum. This amount was taxable earlier but is now tax-free. It is mandatory for the employee to invest the remaining 40 % in annuities listed by Pension Fund Regulatory & Development Authority and the income from these annuity instruments are fully taxable in the hands of the investors.
What is the difference between OPS and NPS
The NPS invests employees’ contributions over the length of their careers in market securities such as equities, thus generating market-linked returns without any assurance of returns while the OPS is based on the monthly pension on the last salary drawn by the employee.
The NPS provides a pension fund on retirement, which is 60 % tax-free on redemption while the remaining sum needs to be invested in annuity which is fully taxable. Income from the OPS is not taxed and under this system, the employee receives monthly payment, which is equal to 50 % of last drawn salary.
What is the State’s new option — GPS?
Amidst protests by the employees demanding repeal of the CPS and reinstatement of the OPS, the Jagan Mohan Reddy Government has tossed a new proposal of a parallel Guaranteed Pension Scheme (GPS).
Stating that implementation of the OPS would mean passing on a huge financial burden on the future generations, while the CPS was not a good option for welfare of the employees, as the quantum of pension would totally depend on bank interest rates that were declining by the day, it said the GPS would be the best bet for the employees in the given circumstances.
An advertisement running two full pages published in major newspapers explained that under the GPS, the employee will receive a guaranteed pension of 33 % of the last drawn basic salary and that market conditions will have no influence on pension under the GPS. “This is nearly 70 % higher than the current 20 % pension under CPS,” said the advertisement.
The employees’ associations are opposed to the GPS as well, as they do not see it a substitute for the CPS. They want the Chief Minister to keep his promise and repeal the CPS and not try to impose new options that will not address their main concerns with regard to pension.
