The National Pension Scheme (NPS) is a government-sponsored pension plan in India that was introduced in 2004. It aims to provide retirement benefits to all citizens in India, regardless of their income level. The old pension scheme, on the other hand, was introduced in the 1950s and was a defined benefit scheme. The difference between the two schemes lies in their structure, investment options, and the way in which the pension is calculated.
The NPS is a defined contribution scheme, which means that the amount of pension received by the employee depends on the contributions made and the returns earned on those contributions. The old pension scheme, on the other hand, was a defined benefit scheme, which meant that the employee was guaranteed a fixed amount of pension based on their salary and the number of years they had served in the organization.
One of the major advantages of the NPS is that it offers more investment options than the old pension scheme. NPS subscribers can choose between equity, government bonds, and corporate bonds, which allows them to create a balanced portfolio and maximize their returns. The old pension scheme, on the other hand, only offered a fixed rate of interest, which limited the investment options for subscribers.
Another advantage of the NPS is its flexibility. Subscribers can choose to withdraw a portion of their savings before reaching the age of 60, which can be useful for meeting unexpected expenses or emergencies. In contrast, the old pension scheme did not allow subscribers to withdraw any amount before the age of 60.
In terms of tax benefits, the NPS is also a more attractive option than the old pension scheme. Subscribers can claim a tax deduction of up to Rs 1.5 lakh under section 80C of the Income Tax Act and an additional deduction of up to Rs 50,000 under section 80CCD (1B). The old pension scheme, on the other hand, did not offer any tax benefits.
In conclusion, the NPS is a better option than the old pension scheme in terms of investment options, flexibility, and tax benefits. However, it is important to keep in mind that the pension amount received under the NPS depends on the contributions made and the returns earned, while the old pension scheme guaranteed a fixed amount of pension. Therefore, it is advisable to carefully consider one’s financial goals and needs before choosing between the two pension schemes.