The Himachal Pradesh government has finally gone back to the old pension scheme (OPS), instead of the national pension scheme (NPS), from April 1. Though the OPS was stopped from January 1, 2004, and the employees joining the service after that were covered under the NPS, the Congress party had promised in the 2022 Assembly polls to go back to the OPS.
A notification in this regard has already been issued by Himachal Pradesh Chief Secretary Prabodh Saxena on April 17. “In view of the Cabinet Decision for the implementation of the old pension scheme under the CCS (Pension) Rules 1972, the state government has decided that contributions of the state government employees (employee’s and employer’s share) covered under the National Pension System shall be stopped with effect from April 1, 2023,” the according to the notification.
The move will benefit both retired and serving employees, and those with over 20 years of service will be entitled to a pension of 50 per cent of basic pay and DA. The move is likely to put a burden of Rs 1,000 crore on the state exchequer.
Earlier this year, after the Himachal Pradesh government had decided to restore OPS, Chief Minister Sukhvinder Singh Sukhu after a Cabinet meeting had said, “The aim of the government is to provide social security to all. We have decided to implement OPS from the point of view of social security and humanity. The affordability of OPS expenditure will be achieved through financial discipline and cutting down on expenses and we believe that there is no such thing which cannot be done.”
New Pension Scheme Vs Old Pension Scheme
The old pension scheme, referred to as the Defined Benefit Pension System (DBPS), is based on the last pay drawn by the employee. The NPS is referred as the Defined Contribution Pension System (DCPS), in which the employer and employee contribute to build a pension wealth payable at the time of retirement by way of annuity/lumpsum withdrawal as per norms.
Under the OPS, the employee could withdraw 50 per cent of the last-drawn salary as pension after the retirement.
Under the NPS, a person is allowed to withdraw 60 per cent of the accumulated corpus contributed during his/ her working years at the time of retirement, which is tax-free. The remaining 40 per cent is converted into an annuatised product, which could currently provide the person with a pension of 35 per cent of his/ her last-drawn pay.
The NPS is applicable to all employees joining services of the central government, including central autonomous bodies (except Armed Forces) on or after January 1, 2004. Many state governments have also adopted NPS architecture and implemented NPS mandatorily for their employees joining on or after a cut-off date.
In the case of pre-mature exit under the National Pension System, at least 80 per cent of the accumulated pension wealth of the subscriber has to be utilised for purchase of an annuity providing the monthly pension to the subscriber and the balance is paid as a lump sum to the subscriber.
The NPS is applicable to all employees joining services of the central government, including central autonomous bodies (except Armed Forces) on or after January 1, 2004. Many state governments have also adopted NPS architecture and implemented NPS mandatorily for their employees joining on or after a cut-off date.
Under the scheme, subscribers can also continue to contribute to the NPS beyond his/ her retirement, up to 70 years of age, and avail additional tax benefit on the contribution.
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