New Delhi: The Centre on Monday clarified that there is no proposal before it to return to the Old Pension Scheme which is applicable to all central government employees who joined the service before 2004. Old Pension Scheme was replaced with the New Pension Scheme for employees who joined on January 1, 2004, or after that.
In response to a question, Bhagwat Karad, the Minister of State for Finance, informed the Lok Sabha that, unlike the Rajasthan government, there is no proposal before the Central government to return to the Old Pension Scheme.
In February this year, the Congress government led by chief minister Ashok Gehlot had announced that it will implement the Old Pension Scheme in the state for all employees who joined the services on or after January 1, 2004. The Rajasthan government’s decision, which was announced in the budget speech this year on February 23, led to similar demands in other states and also for the central government employees.
After the Rajasthan government, another Congress-ruled state Chhattisgarh also announced the decision to implement the old pension scheme. In the state budget presented on Wednesday, Chhattisgarh chief minister Bhupesh Baghel announced that the state will also follow the Rajasthan model and return back to the Old Pension Scheme.
The decision of two state governments led to the demands for implementing the Old Pension Schemes in other states as well.
Old vs New Pension Scheme
Due to the severe financial burden on the public finances, the Old Pension Scheme, under which government employees were entitled to receive a fixed part of their salary as pension after retirement without making any contribution during their service period was withdrawn from January 2004.
The Old Pension Scheme, which was based on a defined benefits method as employees were guaranteed a certain amount of their last drawn salary without making any contribution during their service tenure, was replaced with the New Pension Scheme.
Under the New Pension Scheme, government employees contribute a fixed amount of their salaries in a pension fund administered by the Pension Fund Regulatory and Development Authority (PFRDA) and receive a lump-sum amount upon retirement.
National Pension System (NPS)
The National Pension System (NPS) was introduced for the Central government employees on January 1, 2004. It is aimed at providing old age income security in a fiscally sustainable manner where employees bear a part of the social security burden while the government also contributes its part to the pension fund.
NPS is aimed at channelizing the small savings into productive sectors of the economy through prudential investments. The new pension system has been adopted by the Central and state governments and PSUs. Private sector employees can also invest in the NPS on a voluntary basis.
