While the Andhra Pradesh government has been all for abolishing the Contributory Pension Scheme (CPS) and replacing it with the Guaranteed Pension Scheme (GPS), the employee unions in the State will not have any of it. They wish the CPS to be replaced by the Old Pension Scheme (OPS).
The OPS was removed about two decades ago, to be replaced by the National Pension Scheme or NPS, which is a contributory scheme that gives power to the individual to decide where the money should be invested — equity, corporate debt, government bond and alternative investment funds. Under the two types of NPS accounts, tier 1 account prevents premature withdrawal, while tier II account allows withdrawal before maturity. The individual is required to contribute at least Rs 1,000 every year, whether tier I or II.
The NPS invests the employees’ contributions in market securities, and therefore, gives market-linked returns. That means, there are not assured returns. In the OPS, however, there is a monthly pension based on the last-drawn salary of the employee—50 per cent of the last drawn salary to be precise.
The pension fund that NPS provides on retirement, is 60 per cent tax-free on redemption. The rest of it has to be invested in annuity, which is fully taxable.
In case of OPS, the income is not taxable. However, this is a financial challenge for the government, and the NPS was introduced to overcome this very challenge.
With threats of protests across Andhra, the state government has constituted a special committee to look into the issue.