Curated By: Business Desk
Last Updated: October 05, 2023, 13:10 IST
Both schemes have their advantages and disadvantages.
The National Pension Scheme was introduced by PFRDA or the Pension Fund Regulatory and Development Authority, in 2004, after the OPS (Old Pension Scheme) was discontinued.
Pension is a crucial lifeline for senior citizens, providing them the means to sustain a comfortable lifestyle. Particularly for the common man, a pension serves as a vital financial support. In this context, the National Pension Scheme (NPS) emerges as a valuable investment option.
Introduced by the Pension Fund Regulatory and Development Authority (PFRDA) in 2004, the NPS replaced the Old Pension Scheme (OPS). It caters to both government and private sector employees. Initially, it was exclusively available to government employees, but it later expanded its reach. The NPS not only ensures a pension but also offers investment opportunities. While it doesn’t guarantee a fixed pension amount, it has the potential for high returns on investments.
The NPS is structured into two tiers: Tier one and Tier two accounts. Opting for a Tier One account allows individuals to withdraw funds only upon retirement, whereas Tier Two permits premature withdrawals. Investing in the NPS offers tax benefits of up to Rs 1.5 lakh under Section 80 CCD of the Income Tax Act. According to reports, if 60 per cent of the NPS corpus is withdrawn, it becomes tax-exempt. This makes it an attractive choice for retirement planning, offering the prospect of a lump sum payout.
There are some disadvantages associated with the NPS that should be considered too. It involves a mandatory deduction from one’s salary. Additionally, the funds received post-retirement are subject to taxation. Furthermore, Tier One funds cannot be withdrawn until the individual reaches the age of 60.
The Old Pension Scheme (OPS), established in the 1950s, was exclusively available to government employees. Under this scheme, employees received 50 per cent of their last drawn salary along with a dearness allowance as a monthly pension. Unlike the NPS, salaries were not subject to deductions, and the income received through this scheme was tax-free.
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