OPS vs NPS: Most of the government employees have been campaigning to restore the old pension system (OPS) since the implementation of the National Pension System in the year 2004, about 17 years ago. Most of the employees of many states including Uttar Pradesh did not adopt it in protest against the new pension system. Employees may have to suffer a lot of financial loss in future if they do not choose the new pension system that has been brought in place of the old pension system. It is very important to know that what is the difference between the two pension systems and what are the benefits to the government employees in the new pension system. It is necessary to be aware of the circumstances under which NPS can give better returns.
That’s why government employees consider the old pension system better
Most government employees consider the old pension system to be better because it gives them more confidence. Before the implementation of NPS in January 2004, when a government employee retired, his pension was fixed equal to 50 percent of his last salary. Whether it is 40 years of job or 10 years in OPS, the amount of pension was decided by the last salary i.e. it was the Definitive Benefit Scheme. In contrast, NPS is a Definitive Contribution Scheme, that is, the pension amount depends on the number of years the job has been done and the annuity amount. A fixed amount is contributed every month under NPS. On retirement, 60 percent of the total amount can be withdrawn in a lump sum and the remaining 40 percent has to be purchased from the insurance company’s annuity plan, on which the interest amount is given as pension every month.
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NPS is better in this case
According to tax and investment expert Balwant Jain, OPS is a safer option, but NPS money is also invested in equities, due to which it can get higher returns on retirement after a long service period. Apart from this, according to Jain, NPS is better from tax point of view as total deduction can be claimed on NPS contribution up to Rs 1.5 lakh and additional deduction of Rs 50,000 can be claimed on NPS contribution combined with LIC premium, investment in PPF etc. That is, NPS contribution up to Rs 2 lakh can be claimed. However, it is important to note that if the employer contributes more than Rs 6.5 lakh in any year, then the additional amount is added to the income and tax is to be paid on it.
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If there is no retirement plan then definitely take NPS
In NPS, 10 percent of the basic salary and DA of the state government employee is deducted and the same amount is also given by the state government. However, in the case of central employees, the central government contributes 14 percent. Many workers have not adopted it in protest against NPS, but if they do not have any other retirement plan, then they must take NPS because otherwise they may have to face financial problems after retirement. If someone has got a government job at the age of 25, then for the next 35 years, a substantial amount of corpus will be created on the contribution to NPS and from this contribution one can get better returns with the benefit of tax deduction.