The OPS is a defined benefit scheme, which means that the employee knows exactly how much pension they will receive on retirement.
The pension amount is calculated based on the employee’s salary and years of service.
The OPS is a very secure pension scheme, but it is no longer available to new employees.
Contributory Pension Scheme (CPS)
The CPS is a defined contribution scheme, which means that the employee and employer contribute a certain amount of money each month to the pension fund.
The employee does not know how much pension they will receive on retirement, as this will depend on the investment returns of the pension fund.
The CPS is a less secure pension scheme than the OPS, but it offers more flexibility.
Guaranteed Pension Scheme (GPS)
The GPS is a hybrid pension scheme that combines features of both the OPS and the CPS.
The employee contributes a certain amount of money each month to the pension fund, and the government guarantees a minimum pension amount on retirement.
The GPS is a more secure pension scheme than the CPS, but it is not as flexible.
- Through GPS the employee receives a guaranteed pension of 50% of the last drawn basic pay.
- Market conditions will have no influence on the pension under GPS, leaving no chance for reduction of pension in future.
- This is nearly 150% higher than the present 20% pension under CPS received in line with present interest rates.
- But in GPS, guaranteed 50% of last drawn basic pay will be given to the employee consistently without any reduction
Options offered by AP Government under GPS
Option-1
- Every month, if an employee contributes 10% of his salary, Government will add another 10% to it and
- The employee after retirement would receive 33% of his last drawn basic pay as a guaranteed pension every month.
Option-2
- Every month, if an employee contributes 14% of his salary. Government will add another 14% to it and
- The employee after retirement would receive 40% of his last drawn basic pay as a guaranteed pension every month.
OPS vs CPS vs GPS Pension Schemes: What's the Difference?
The main difference between OPS, CPS, and GPS is that OPS is a defined benefit scheme, while CPS and GPS are defined contribution schemes.
- Under a defined benefit scheme, the employee knows exactly how much pension they will receive on retirement.
- Under a defined contribution scheme, the employee does not know how much pension they will receive on retirement, as this will depend on the investment returns of the pension fund.
Conclusion
OPS is generally considered to be a more generous pension scheme than CPS or GPS. However, OPS is also more expensive for the government.
