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Will OPS emerge as a major issue in Gujarat after Himachal?

With the 182-member Gujarat Assembly elections just around the corner, both the Aam Aadmi Party (AAP) and Congress are conducting a series of polls to end the BJP’s 27-year rule in the state. One of those promises that has been merged into an important voting board for both parties is the restoration of the Old Pension Scheme (OPS).

The issue also found a place in both Congress and AAP manifestos for the recently concluded Assembly polls in Himachal Pradesh.

The BJP-led NDA government terminated the old pension scheme in December 2003, with the new pension scheme being introduced on 1 April 2004. The move received widespread backlash from government employees, who have protested against it over the years.

Now, in a bid to get these thousands of government employees – who are dissatisfied with the new plan – on their side, AAP pledged on Sunday to restore OPS in Gujarat by January 31 next year if they came to power.

Earlier, Rahul Gandhi also said that Congress will bring back the old retirement OPS and ensure timely promotions when it comes to power in Gujarat.

Difference between old and new pension schemes

Under the old pension plan — known as the Defined Benefit Pension System (DBPS) — upon retirement, government employees would receive 50 percent of their most recently drawn base salary and dearly benefit (DA) or their average earnings in the last 10 months of service, whichever is the case. is best for the employee.

The New Pension Scheme (NPR), on the other hand, is a contribution-based pension system. According to the NPR, employees are allowed to withdraw 60 percent of the accrued corpus contributed during their working hours at the time of retirement, which is tax-free.

The remaining 40 percent is converted into an annualized product, with which the employee could currently receive a pension of 35 percent of the last salary taken.

The NPR applies to all employees who enter the service of the central government on or after 1 January 2004, including central autonomous bodies (with the exception of the armed forces).

Many state governments have also adopted the NPS architecture and made it mandatory for their employees to join on or after a cut-off date.

In the case of early retirement under the national pension scheme, at least 80 percent of the subscriber’s accrued pension assets must be used to purchase an annuity that provides the monthly pension to the subscriber and the balance is paid out as a lump sum for the subscriber.

Under the scheme, subscribers can also continue to contribute to the NPS after retirement, until age 70, and take advantage of additional tax benefits on the contribution.

Why some employees protested against the new regulation

Over the years, workers across the country have staged massive agitation and demanded reinstatement of the OPS, believing the new pension plan is not in the interests of retired workers. The backlash over the plan could prove to be serious problems for the BJP governments in both Gujarat and Himachal as the party is on its toes over the issue.

Rajasthan and Chhattisgarh, which are ruled by Congress, and Punjab, which is ruled by AAP, have already returned to the OPS.

Worrying with OPS

The main concern with OPS was that the pension obligation under it remained unfunded. According to media reports, there was no corpus, especially for pensions, that would grow continuously and could be dipped in payments.

The pay-as-you-go system created cross-generational equity issues as the current generation of taxpayers had to shoulder the ever-increasing burden of retirees.

The OPS was also unsustainable, as pension liabilities would continue to rise as retiree benefits increased each year.

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