One evening, when I was sitting in front of my senior colleague in the bank, So I saw him a bit tensed. After his recent retirement from government service, he was worried about his financial future under the National Pension System (NPS). It was from him that I heard the story of the old pension scheme (OPS) which guaranteed a fixed monthly pension based on the last salary drawn. This OPS pension scheme assured more security.

Old Pension Scheme (OPS) India - Guaranteed Retirement Income for Government Employees
The Old Pension Scheme (OPS) guarantees a fixed pension based on the last drawn salary for eligible government employees.

I decided to dig deeper into the history, benefits of fasting, and the reasons why some states are now reintroducing it. My journey began that evening, inspired by the desire to make my senior colleague feel secure in his retirement.

History of the Old Pension Scheme

The OPS was introduced by the Government of India prior to the implementation of the New Pension Scheme (NPS) in 2004. It is primarily designed to meet the requirement of Government employees, It aims to provide a stable source of income to Central Government Employees after retirement. Under this scheme, employees who joined government service before 2004 were entitled to a pension which was calculated as a fixed percentage of their last drawn salary, usually 50%.

The office was a comprehensive welfare measure for government employees, and was aimed at ensuring the well-being of employees in their old age. But the introduction of NPS was a symbol of important change in the pension situation. As per government records, before the implementation of NPS, almost 70% employees were nominated under OPS.

Implications of Abolishing OPS

The NPS, introduced in 2004, moved the pension system from a defined benefit model to a defined contribution model. Under the NPS:

  • Employees are required to contribute a certain percentage of their salary to their pension fund, And the government also contribute some percentage to the pension fund.
  • After the introduction of this scheme, the amount of pension amount has become uncertain, because these contributions depend on the performance of the investment made from these contributions.

This shift had several implications:

  • Financial Security: After the implications of the NPS Scheme, many employees felt insecure about their retirement benefits as their pension now depended on the performance of the market instead of a fixed amount. We can get this from several reports published on the newspapers which indicated in their report that more than 60% of the government employees have expressed satisfaction with NPS.
  • Resistance and Protests: The introduction of the NPS faced opposition from various employee bulls and organisations who argued that the scheme lacked the stability and security offered by OPS.

Benefits of the Old Pension Scheme

The OPS offered several benefits that appealed to government employees:

  1. Guaranteed Pension: The Old Pension Scheme has ensured that retiring employees receive a fixed pension which provides financial stability and compensation to the employees and their families.
  2. No Employee Contribution: Employees were not required to contribute any part of their salary which made it more attractive than NPS
  3. Family Pension: In this pension scheme, after the death of the employee, pension is provided to his/her spouse or dependents, thereby ensuring financial support to the families.
  4. Incremental Benefits: The amount of pension could be revised on the basis of the recommendations of the Government Pay Commission, which gave pensioners the freedom to live with inflation.
  5. Lifelong Security: The OPS scheme provided lifelong benefits which ensured that retired employees get a foothold in their life and they could live their life very easily.

Withdrawal of OPS

The Old Pension Scheme was effectively abolished for all new government employees joining after 1 January 2004, because NPS became a mandatory pension scheme. The purpose of this change was to reduce the financial burden on the government in respect of pension obligations and this was perhaps the main reason for abolishing the OPS. However those who were in service prior to the date retained their eligibility for the OPS.

Reintroduction of OPS in Various States

In the recent years, dissatisfaction with NPS has seen a growing demand for restoration of OPS Scheme inn many Indian states and many employee organisations have protested for the same. Some states have restored the benefits for new employees who were affected by the worker protests and demands.

States Restoring OPS:

  1. Rajasthan: The state government of Rajasthan restored the OPS for new government employees in 2021, citing the need to provide better financial security.
  2. Chhattisgarh: The Chhattisgarh government announced the reimplementation of the OPS for its employees.
  3. Punjab: The Punjab government has expressed intentions to revert to the OPS as per The Hindu Newspaper reports, but till now they didn’t restore this, responding to demands from various employee unions.
  4. Himachal Pradesh: In 2024, the state government announced plans to restore the OPS for government employees. Read Times of India report.

Reasons for Reviving OPS

The revival of the OPS in various states stems from several factors:

  • Financial Security: Employees feel that OPS offers more security assurance and stability as compared to market linked returns of NPS.
  • Political Influence: Employees unions and organizations have made strong demands for restoration of OPS, while political parties have promised to restore it to gain support of government employees.
  • Market Volatility: The uncertainties of NPS due to market fluctuations had raised concerns about the future financial stability of the employees, which will be reduced with the advent of OPS.
  • Public Sentiment: The growing dissatisfaction towards NPS has led to protests and demonstrations which has put pressure on the state government and the central government to consider returning to OPS.

Official Sources:

Conclusion

The Old Pension Scheme was a foundation of financial security for government employees in India, offering guaranteed benefits that have since been replaced by a more unpredictable system under the New Pension Scheme (NPS). As dissatisfaction grows among employees regarding the uncertainties of the NPS.

Several states like Rajasthan, Chhattisgarh, Punjab and Himachal Pradesh reconsidering their pension policies and reapplying the OPS to restore the financial stability that employees request. The ongoing discussions and movements surrounding the OPS highlight the importance of satisfactory retirement planning and employee welfare in the evolving landscape of public service in India.

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FAQs about the Old Pension Scheme

When was the OPS withdrawn?

The OPS was withdrawn for new government employees who joined after January 1, 2004, with the introduction of the New Pension Scheme (NPS)

Which states have reinstated the OPS?

States like Rajasthan, Chhattisgarh, Punjab, and Himachal Pradesh have reinstated the OPS due to demands from employees.

What are the benefits of OPS?

Benefits include a guaranteed pension, no employee contribution, family pension, incremental benefits based on government pay commission recommendations, and lifelong security.

Why is there a demand for OPS?

The demand arises from dissatisfaction with the NPS, which is seen as less secure due to its dependence on market performance.

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