Retirement benefits and pension schemes have always been at the heart of employment with the Central Government of India. For many aspirants, the security and stability of post-retirement life are among the strongest reasons to prefer government service over private jobs. Over time, however, the pension landscape has changed, particularly with the shift from the Old Pension Scheme (OPS) to the National Pension System (NPS).

The Old Pension Scheme (OPS)

Features of OPS

• Defined Benefit System: Pension was fixed as 50% of the last drawn basic pay.
• Dearness Relief (DR): Pensioners received DA hikes in line with serving employees.
• Lifetime Assurance: Guaranteed pension for life, with family pension available after the employee’s death.
• Government Liability: The entire burden of pension was borne by the Government.

OPS was widely regarded as a golden safety net, ensuring financial stability without market risks.

Why OPS Was Replaced

• Growing pension liabilities placed heavy strain on the exchequer.
• Unsustainability in the long run prompted the Government to adopt a more market-linked model.

The National Pension System (NPS)

Introduced in 2004 for Central Government employees (except armed forces), NPS replaced OPS with a contributory pension model.

Structure of NPS

• Employee Contribution: 10% of basic pay + DA.
• Government Contribution: 14% of basic pay + DA (enhanced in 2019 from the earlier 10%).
• Investment: Funds are invested in equities, government bonds, and corporate debt.

Benefits of NPS

• Market-Linked Growth: Potential for higher returns compared to a fixed system.
• Portability: Employees can track their pension accounts through Permanent Retirement Account Number (PRAN).
• Tax Benefits: Contributions are eligible for income tax exemptions under Section 80CCD.

Criticisms of NPS

• No guaranteed pension amount after retirement.
• Dependent on market conditions, creating uncertainty.
• Employees’ unions have demanded restoration of OPS, citing the need for assured income.

Retirement Benefits

Even after NPS replaced OPS, Central Government employees continue to enjoy several retirement-linked benefits.

Gratuity

• Employees receive retirement gratuity as a lump sum.
• Calculated based on years of service and last drawn salary.
• Tax-free up to ₹20 lakh under the Income Tax Act.

Leave Encashment

• Unused earned leave is encashable at retirement.
• Provides additional financial support, capped at 300 days.

Commutation of Pension (under OPS and limited provisions in NPS annuities)

• A portion of pension could be taken as a lump sum, with reduced monthly pension thereafter.

Central Government Employees Group Insurance Scheme (CGEGIS)

• Provides savings and insurance coverage during service.
• Amount accumulated is payable on retirement or death.

Medical Benefits

Central Government Health Scheme (CGHS)

• Retired employees and their dependants can continue medical facilities under CGHS by paying a one-time contribution.
• Covers OPD treatment, medicines, hospitalisation, and referral to empanelled private hospitals.

Fixed Medical Allowance (FMA)

• For pensioners living in areas not covered by CGHS, a monthly allowance is provided for medical expenses.

Family Pension

In the event of an employee’s death, the family becomes eligible for family pension.

• Rate: 50% of last drawn pay for 10 years (enhanced family pension). Thereafter, 30% of last pay.
• Eligibility: Spouse, dependent children, and in certain cases, dependent parents.

This ensures financial stability for dependants even after the breadwinner’s death.

Debates Around OPS vs NPS

The transition from OPS to NPS has been contentious:

• Employee Unions’ Stand: Demand restoration of OPS, citing guaranteed pension and inflation-adjusted dearness relief.
• Government’s Argument: NPS is sustainable and reduces fiscal burden.
• Current Developments: Several state governments (Rajasthan, Chhattisgarh, Punjab, Himachal Pradesh) have announced a return to OPS, but the Centre has not agreed.

For Central Government employees, retirement benefits go beyond just monthly pensions. Gratuity, leave encashment, health benefits, and family pensions together provide a strong safety net. However, the debate between OPS and NPS remains one of the most pressing issues for lakhs of employees. While OPS offered certainty, NPS offers sustainability and long-term viability. The balance between employee welfare and fiscal prudence will shape the future of pension reforms in India.