In a significant move, Chhattisgarh Chief Minister Bhupesh Baghel recently announced the reinstatement of the old pension scheme for government employees in the state.
This decision comes following the Rajasthan government’s lead in implementing the same scheme. Here’s what you need to know:
Background
During Atal Bihari Vajpayee’s tenure, a new pension scheme was introduced in India, except for the Defense Forces, replacing the old one from April 1, 2004.
It mandated government employees joining service after April 1, 2004, to contribute a portion of their salary to the New Pension Scheme.
While the central government enforced this new system, it wasn’t mandatory for states.
Many states initially adopted it, but soon, state employee organizations began opposing it, demanding a return to the old pension scheme.
Financial Impact
The reinstatement of the old pension scheme will not burden the state government financially.
In fact, it is expected to result in annual savings of approximately Rs 1680 crore.
Under the contributory pension system (new pension scheme), the state government had been contributing this amount.
As most of the employees affected by this change will retire between 2030 and 2032, the government will be relieved of these financial obligations at that time.
Key Differences Between OPS and NPS
Deductions: In the Old Pension Scheme, there are no deductions from an employee’s salary for pension, whereas the New Pension Scheme deducts 10% (Basic + DA).
GPF Facility: The old pension scheme includes the General Provident Fund (GPF) facility, which is absent in the new pension scheme.
Security: The old pension scheme offers a secure, government-funded pension, while the new pension scheme relies on the stock market, with payouts based on market performance.
Fixed Pension: The old pension scheme provides a fixed pension of up to 50% of the last basic salary at the time of retirement, unlike the new scheme, which lacks this guarantee.
Gratuity: Under the old scheme, gratuity up to Rs 20 lakh is available after retirement, but there’s only temporary gratuity provision in the new scheme.
Dearness Allowance (DA): In the old pension scheme, DA is applicable after 6 months, whereas it’s not applicable in the new scheme.
Tax on Interest: There’s no income tax on GPF interest upon retirement in the old pension scheme, while the new scheme subjects retirement proceeds to stock market-based taxation.
Family Pension: The old scheme provides for family pension in case of death during employment, whereas the new scheme offers family pension but with the government owning the deposited funds.
Investment Requirement
The old pension scheme does not require GPF investment for pension upon retirement, but the new scheme mandates a 40% investment from the New Pension Scheme Fund for retirement benefits.
This move by the Chhattisgarh government aligns with the growing sentiment among state employee organizations to return to the old pension scheme for its various benefits and security features.
