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Old & New Pension Scheme

Nalini Sharma

When comparing new pension plans to older pension plans, which is better? To learn the distinctions between the old and new pension plans, read this blog. Let's start by discussing each of their ideas.

The ability to get a pension after retirement is one benefit of working for the government. This pension will be paid as long as you are alive. Knowing the distinction between the Old Pension Scheme and the New Pension Scheme is important when discussing pensions. Let's start by discussing each of their concepts.

What is Old Pension Scheme?

Since its introduction in 1950, India's pension programme has only been available to the nation's government employees. Government employees who participated in the OPS Old Pension Scheme received 50% of their last basic wage. Also given to them is a Dearness Allowance. When they retire, everything is given to them. There is a guaranteed income with this plan. To be eligible for this programme, an employee must have worked for at least ten years.

What is New Pension Scheme?

The National Democratic Alliance (NDA) administration created the New Pension Scheme, popularly known as NPS, in 2003. It did, however, start to take effect in 2004. Both government and private sector employees have access to the New Pension Scheme. In accordance with this plan, businesses contribute 14% of salaries, and employees chip in 10% of base pay.

The New Pension Scheme is open to employees in the private sector as well. You get more freedom and control over your future when you make a contribution to this plan. The returns that are based on the market will be advantageous to you. Additionally, 60% of the profit you receive at maturity is tax-free. The remaining 40% may be put into 100%-taxable annuities.

Read more at Mahindra Paybima:- Old & New Pension Scheme

5 Major Differences between Old Pension Scheme and New Pension Scheme

According to the most recent information on the Old Pension Scheme, Chattisgarh and Rajasthan are the two states that received the announcement that the Old Pension Scheme would replace the New Pension Scheme. The Old Pension Scheme has a larger financial cost, but the New Pension Scheme is unreliable.

Let's first talk about how these two ideas vary as the states fight to get the Old Pension Scheme for the workers. So, let's look at some of them.

1. Tax benefits:

The Old Pension Scheme states that the pension amount is tax-free. The remaining 40% is taxable if it is invested in annuities, while the first 60% of the sum is tax-free under the New Pension Scheme.

2. Return certainty:

The Old Pension Scheme offers return assurance. It is based on the employee's final wage, which was the monthly pension. The New Pension Scheme has no guarantees and offers market-linked returns.

3. Contributions:

The monthly payments under the Old Pension Scheme are nearly equal to 50% of the last income an employee received before retiring. Employees contribute 10% of their salary to the New Pension Scheme, and businesses contribute 14%.

4. Eligibility:

When it comes to eligibility, only people employed in the public sector are eligible to receive a pension under the Old Pension Scheme once they leave the service. Any Indian citizen between the ages of 18 and 65 may participate in the New Pension Scheme and receive its benefits.

5. Flexibility:

The Old Pension Scheme had little flexibility and a fixed monthly payout. In the case of the New Pension Scheme, it is not the same. You'll have more flexibility and financial control. You have the option of selecting your asset allocation, which allows you to generate larger returns and build a sizable retirement fund.

As we discuss the two types of pension schemes in India, they both come with their own sets of pros and cons. Therefore, before choosing the ones that suit your needs, you first need to compare both of them thoroughly and then make up your mind.

Nalini Sharma
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