By Ashok Kumar, Joint Secretary, Kamgar Ekta Committee (KEC)
Practically every day we have been reporting on this website the fights that are being waged by government employees all cross the country for the restoration of the OPS (Old Pension Scheme). These fights are not new; they have been going on since the NPS (New Pension Scheme) was made mandatory for all new recruits joining the central government service from 1st January 2004. A majority of the state governments notified and adopted the NPS over the next ten years. Over the past two decades, as more and more employees covered by the NPS are retiring, the terrible impact on them is becoming more and more clear.
Since then, some state governments have reverted to the OPS or promised to do so. However various governments led by different parties that have been formed at the centre have paid no heed to this demand. It is evident that this fight needs to be strengthened by mobilising more workers, their families and others. For that it is necessary to explain to them the difference between the NPS and OPS, and that is why we will look at it here.
The NPS is compulsory for all government employees joining service after January 1, 2004. Private companies have the option to offer NPS in place of Employees’ Provident Fund (EPF). They can shift from EPF to NPS if employees agree.
Under the OPS, the entire pension amount came from the government. It was 50% of last drawn salary, with a – minimum guaranteed pension of Rs. 9000/-per month. It was partially adjusted for inflation through the DA.
Under the NPS, employees have to contribute 10% of basic pay + DA and the government contributed a matching amount. From 1st April, 2019 the government contribution was changed to 14%.
Under the NPS, there is no provision for DA. This means that after working for years if not decades, in old age the worker, who is generally subjected to increasing medical expenses, will be able to afford less and less.
The total amount collected in the NPS is handed over to private designated pension fund managers. They in turn invest this in some combination of equity, corporate bonds and government securities, which the employee is required to choose. The returns from the investment constitute the employee’s post retirement income.
Most people in our country do not know anything about equity, bond and securities market, risks involved and returns expected. Yet, the government wants them to make the choice so that it can blame the employees themselves for poor returns on the investments.
By asking private fund managers to manage investment of pension funds of employees, the government has not only provided a new source of profit to private capital but also handed over huge amount of savings of people to them for speculation and profiteering.
The biggest problem with the NPS is that there are no guaranteed returns on this investment, though all through his or her working life, the worker has to contribute a defined amount. If there is a share market crisis the investment can even be completely wiped out!
That this is not an irrational fear is proven by life experience. Though the NPS is promoted in the name of a higher return due to investment in the share market, the experience has been that the retired employee receives a much lower monthly amount than under the OPS.
For example, an employee who retired with a basic pay of ₹41,100 after 17 years of service would have received ₹31,852 as monthly pension under the OPS. His actual pension under the NPS is merely ₹3,284! (See Box for details)
What sort of old age can the workers under the NPS look forward to?
An attack on one is an attack on all! We need to explain this to our families. The youth and children of today will come under the NPS even if they are able to join government services. Even the children of those workers who are covered by the OPS today will be as badly affected.
Fights of workers become successful if they are able to explain their point of view to the people at large. There is an urgent need to explain why we are fighting for the restoration of the OPS!
Sri V.V.Geetheswaran, Loco Pilot (LP)/G/Palghat division (PGT) retired on 30-05-2021 after 17 years of railway service. He was appointed after 01-01-2004 and covered under NPS. He had a total accumulated pension fund of Rs. 18,37,000.
Out of it 40% of it was commuted and the rest was used to purchase pension annuity. Even though the Government says that this 40% amount is tax free but a GST of 18% is levied on this amount. Out of 3 pension fund managers namely SBI life, LIC and UTI he selected SBI Life Pension annuity scheme.
Now he is receiving a mere amount of Rs. 3,284 as pension per month. No Dearness relief to this pensioner to take care of inflation (because no dearness relief in NPS), whereas in old pension scheme dearness relief (like DA) is there to take care of the inflation.
He was drawing a basic pay of Rs. 41,100 at the time of retirement. If he was in the defined benefit Old Pension Scheme, he would have received a pension per month + applicable DR as follows:
Basic Pension= 50% of (41100+55% of 41100 as DR) = Rs. 31852.
Comparison between NPS and OPS
|Administered and regulated by Pension Fund Regulatory and Development Authority. Started in 2004 for government employees and in May 2009 for others
|Defined as per pension Rules 1972.
The Department of Pension & Pensioners’ Welfare administers the pension scheme for central govt.
|Who is eligible for this scheme?
Compulsory for all government employees joining service after January 1, 2004. Private companies have the option to offer NPS in place of Employees Provident Fund (EPF). They can shift from EPF to NPS if employees agree.
Anyone joining service after 1.1.2004 is not eligible.
|Defined contribution but benefits not defined. There is no minimum guaranteed pension.
No employee contribution.
– 50% of last drawn salary+DA on completion of 20 years of service
– minimum guaranteed pension of Rs. 9000/-per month
|Government employee contributes 10% of basic pay + DA and government contributes matching amount. Government contribution changed to 14% w.e.f. 01.04.2019.
The total amount collected is handed over to designated private pension fund managers who invest this in some combination of equity, corporate bonds and government securities.
|No contribution from the employees
|Employee is required to choose a fund manager out of a panel. The returns from the investment will constitute the employee’s post retirement income.
There are no guaranteed returns on this investment. If there is a share market crisis the investment is vulnerable to getting wiped out.
|From Consolidated fund of government of India.
Pension accounts for Rs. 2,32,000 crores out of total yearly government disbursements of Rs. 1,03,21,000 crores (2020-21 budget estimate).
Note: Besides selecting the fund manager under NPS, an employee is also required to select where pension funds should be invested. There are three asset classes or options G, C and E, which differ in terms of safety.
|Will only invest in Central and State government bonds.
|Fixed income securities of entities other than the government
|Investment in equity related products like index funds that replicate the Sensex. However, equity investment will be restricted to 50% of the portfolio.
G is very safe, while C is safe and E carries moderate risk.
The subscriber has to choose how much will be invested in G, C or E subject to a maximum of 50% in E. This is known as “Active Choice”. The alternate to this is to opt for “Auto Choice” which means the chosen fund manager will invest in a pre-determined ratio as per the age of the subscriber. If the subscriber does not make a choice, then the “Auto Choice” will be applied by default.