Why in news:

• Rajasthan has become the first State to go back to Old Pension Scheme (OPS) for its government employees.
• This development has taken place at a time when key opposition parties had promised to revert to Old Pension Scheme in other states, if voted to power.

Key Points:

• Till date, barring West Bengal, all States and Union Territories and the Cente have New Pension Scheme, better known as National Pension System (NPS).
• Centre introduced NPS for all its new officials and employees, except those from armed forces, joining service on or after January 1, 2004.
• Rajasthan was first among States which adopted the system and later various States except West Bengal adopted the system.
• According to the key officials, the employees associated with government services should feel secure about the future, only then they can make their invaluable contribution towards good governance during the service period.
• Therefore, for all the employees appointed on or after January 1, 2004, the state government has proposed to implement the old pension scheme, on the occasion of presentation of State Budget for fiscal year 2022-23.

New Pension Scheme vs Old Pension Scheme

• New Pension Scheme (NPS) is known as contributory mechanism while OPS is called defined mechanism.
• One of most important factors for switching to NPS was to cut down the cost of pension payout.
• Under OPS, employees get pension under pre-determined formula which is half of last drawn salary. They also get the benefit in the revision of Dearness Relief (DR), twice a year.
• However, the new mechanism is based on contributions where an employee deposits 10 percent of the basic pay plus dearness allowance.
• Initially, Centre was giving matching contributions which was later raised to 14 per cent. However, State governments continued their contribution of 10 per cent.
• Now, this year’s budget has raised tax deduction limit to 14 per cent from 10 per cent for employer’s contribution to the NPS account of State Government employees as well.
• This would help in enhancing the social security benefits of the State government employees and bring them at par with Central government employees.
• The contributions and returns are deposited in a non-withdrawable pension account. Fund is invested by a professional manager into equities, bonds etc.
• Individuals can normally exit at or after age 60 years from the pension system.
• At the time of exit, the individual would be required to invest at least 40 percent of pension wealth to purchase an annuity.
• In case of government employees, the annuity should provide for pension for the lifetime of the employee and his dependent parents and his spouse at the time of retirement.
• The individual would receive a lump-sum of the remaining pension wealth, which the subscriber would be free to utilize in any manner.
• Individuals would have the flexibility to leave the pension system prior to age 60. However, in this case, the mandatory annuitisation would be 80 per cent of the pension wealth.