NPS vs OPS

The National Pension System and the Old Pension Scheme sit on opposite sides of a basic design choice: who bears the investment risk, and how is the eventual retirement income determined? Understanding that one difference explains almost everything else between them.

The core structural difference

OPS is a defined-benefit scheme — the pension is a guaranteed percentage of the employee's last drawn pay, funded entirely by the government, with no individual contribution required from the employee. NPS is a defined-contribution scheme — both employee and government contribute a fixed percentage of pay each month into an individual account, which is invested in market-linked instruments, and the eventual retirement income depends on how that corpus grows.

How the pension amount is determined

Under OPS, the pension is calculated as a set proportion of the last drawn basic pay, and it rises with each subsequent dearness relief revision — the amount is known in advance and does not depend on market performance. Under NPS, at retirement the accumulated corpus is used partly to purchase an annuity (which generates the monthly pension) and partly withdrawn as a lump sum, so the eventual monthly income depends on contributions made, years invested, and market returns over the career.

Eligibility and the choice between the two

Which scheme applies to an employee is generally determined by the date of joining service, per norms issued by the Department of Pension and Pensioners' Welfare (DoPPW) and the corresponding state notification. Where a one-time option to move from NPS to OPS has been permitted for specific categories of employees, it is usually final and irrevocable — which is why comparing the projected outcomes of both before opting is worthwhile.