NPS vs OPS - Which One is better?

Retirement planning is one of the key decisions of salaried and self-employed individuals. One of the most important factors affecting this decision is your selected pension plan. The two pension schemes that often get confused with each other are NPS and OPS. Wondering what exactly these pension plans are? Don’t worry, we have got you covered. In the section below we will not only talk about what is NPS and OPS but also identify the differences between the two.

What is NPS?

The National Pension Scheme was introduced by the National Democratic Alliance (NDA) in 2004. Initially, the NPS was directed only at government employees. However, later in 2004, the Pension Fund Regulatory and Development Authority made this scheme extended to all including both salaried and self-employed employees. NPS is a contributory scheme, which means both the employee and the employer make regular contributions to the employee's NPS account during their working years. Thus, under this scheme, individuals can contribute a specific amount of money till 60 years of age. 

Some of the features of NPS are as follows:

• The contributions made towards NPS are regulated by fund managers and PFRDA
• NPS has a two-tier structure Tier-I and Tier-II, Tier-I is a mandatory long-term retirement account while Tier-II is a voluntary savings facility that offers flexibility in terms of withdrawals and contributions
• The contributions made towards NPS are tax exempted as specified under section 80C of the Income Tax Act of 1961
• It is a market-linked annuity plan
• Government employees can contribute 10% of basic salary along with 14% contributed by the Governement of India, while other individuals can contribute a minimum of Rs. 500 every month
• With the NPS scheme, individuals can withdraw 60% of the contributions after they retire and invest the remaining amount of 40%

What is OPS?

OPS or commonly known as Old Pension Scheme is a pension specifically designed for government employees. This scheme is applicable for those who have completed at least 10 years of service. The pension scheme hence drawn is based on the last salary withdrawn. With changes in the Dearness Allowance or DA, the pension amount also gets increased accordingly. Moreover, as the government pays towards OPS which means that no amount is deducted from the individual’s salary. 

Listed below are the features of OPS:

• Employees who joined after 2014 are eligible for getting pension under NPS and not OPS
• This scheme ensures a fixed pension irrespective of market fluctuations or investment performance
• It is a non-contributory pension scheme
• The pension amount received out of OPS is tax-free
• As of February 2023, the Department of Pension and Pensioner’s Welfare allowed the employees of Central Government to choose OPS as their pension scheme
• OPS offers individuals an opportunity to save lump-sum amount post retirement
• The entire pension amount is borne by the Government of India and thus there is no liability on the individuals

NPS vs OPS: Track the Differences

Here are some of the differences between National Pension Scheme (NPS) and Old Pension Scheme (OPS) that you should know about:

Which is Better: NPS or OPS?

When it comes to which is better, NPS or OPS, there are a few things that need to be considered. For instance, if the individual wants to enjoy a greater flexibility in terms of withdrawals and contributions made, then the NPS scheme is suggested. However, on the other hand, OPS is suggested for those looking for a pension scheme that guarantees a lump-sum amount post retirement. Moreover, OPS also provides the benefit of getting the pension amount increased every year, on the basis of increase in Dearness Allowance or DA. So, analyze your post retirement financial requirements and accordingly choose between NPS and OPS. 

Other Pension Schemes Offered by Indian Government

Listed below are three other pension schemes that is offered by the Government of India:

• Atal Pension Yojana (APY): The Atal Pension Yojna or APY is a popular pension scheme under the Government of India. It is regulated by the Pension Fund Regulatory and Development Authority and is eligible for individuals aged between 18-40 years. You can choose the contribution amount ranging from Rs. 1,000 to Rs. 5,000 based on your financial needs.

• Pradhan Mantri Vaya Vandana Yojana: The Pradhan Mantri Vaya Vandana Yojana is not affected by market fluctuations and is thus a popular pension scheme for those with low risk appetite. LIC or Life Insurance Corporation of India operates this scheme and it even offers a loan facility.

• Employee Pension Scheme (EPS): It was introduced by the Employee Provident Fund Organisation in the year 1995. In order to enjoy the benefits of EPS, you need to be a member of EPFO. Moreover, to receive the pension amount, you need to be at least 58 years of age and must have served at least 10 years of service. 

Take Away

Thus, as both NPS and OPS have their merits and demerits, you should consider the aforementioned differences while making your decision. You can also consult a financial advisor who will help you in the right way to select a pension scheme.

FAQs 

• What is the full form of NPS and OPS?

NPS stands for National Pension Scheme and OPS stands for Old Pension Scheme.

• Who is eligible for getting pension under OPS?

Only government employees are eligible to get pension under OPS.

• What is the minimum contribution amount that can be made under NPS?

You can invest a minimum amount of Rs.500 towards NPS or National Pension Scheme.

• Which is better, NPS or OPS?

Both NPS and OPS have their own advantages. You should consider factors like your risk appetite, financial needs, and others while choosing between the two.