An Overview of the Guaranteed Pension Scheme (GPS)

The Andhra Pradesh Government has introduced a new pension plan that is now under consideration by the Union Government.

• The Andhra Pradesh Pension Plan is a unique pension concept that incorporates elements of both the Old Pension System (defined benefit) and the New Pension Scheme (defined contribution).
• This program is also known as the “Guaranteed Pension Scheme” (GPS).
• Union Finance Ministry officials have described the idea as "attractive," but emphasize that it requires further examination.

Features of the Guaranteed Pension Scheme

• Under GPS, employees who contribute 10% of their basic salary every month, matched by a 10% contribution from the state government, can receive a guaranteed pension equivalent to 33% of their final salary.
• If employees choose to contribute a higher 14% of their monthly salary, matched by a 14% government contribution, they can receive a guaranteed pension of 40% of their last drawn salary.
• The scheme combines elements of both the New Pension Scheme and the Old Pension System (defined benefit) (defined contribution). It offers two options for a “defined benefit” and requires a monthly “defined contribution” from employees.

The Old Pension Scheme:

• This scheme assures a post-retirement income for life.
• Usually, the assured sum is equivalent to 50% of the final salary received.
• The government bears the cost of the pension. This scheme was discontinued in 2004.

The New Pension Scheme:

• The government introduced NPS for its employees after it was initially designed for workers in the unorganized sector.
• NPS for Central Government employees was announced on December 22, 2003, and became mandatory for all new government hires from January 1, 2004.
• The defined contribution consisted of a matching contribution from the government and 10% of the employee’s base salary and dearness allowance. The government’s share of the basic pay and dearness allowance increased to 14% in January 2019.

Comparison: Guaranteed Pension Scheme Vs Old Pension Scheme Vs New Pension Scheme

Conclusion :

• The main distinctions between these schemes lie in their structure and management. The Guaranteed Pension Scheme and the Old Pension Scheme are Defined Benefit Plans, where the benefit is fixed and guaranteed, and the employer is responsible for funding it.
• The New Pension Scheme is a Defined Contribution Plan, where the benefit depends on the contributions made by the employee and the investment returns earned on these contributions. Here, the employee bears the investment risk.
• Furthermore, the Guaranteed Pension Scheme and Old Pension Scheme are typically offered to government employees, while the New Pension Scheme is offered to both government and private sector employees.