The NDA government is considering offering central government employees enrolled in the National Pension Scheme (NPS) a pension equal to 50% of their last drawn salary. This proposal aims to address the concerns of the central government employees recruited after 2004 about their pension payouts.
The government asserts that the NPS will deliver attractive returns for those invested for 25-30 years, especially for employees recruited after 2004.
What did the Committee Say?
The Somanathan committee has studied global practices and examined the changes made by the Andhra Pradesh government. They have also conducted detailed calculations to assess the impact of providing a specific return. While the Centre might offer a guarantee of 40-45%, this may not fully satisfy the concerns of long-serving employees. Therefore, there is growing support within the government for a 50% guarantee, where the government would cover any shortfall if necessary.
The committee believes it is essential to review the scheme annually. This suggestion comes from the unfavorable comparison with the old government pension system, which does not have a retirement fund.
It is expected that the government will establish a retirement fund in Budget 2024, similar to retirement benefits offered by companies.
What is National Pension Scheme?
The National Pension Scheme (NPS) is a voluntary, long-term retirement savings plan designed to provide financial security during retirement.
Regulated by the Pension Fund Regulatory and Development Authority (PFRDA), the NPS operates on a defined contribution basis. Subscribers contribute to their retirement account regularly while working, and the funds are invested in various financial instruments, including equities, corporate bonds, government securities, and alternative assets.
Pension Fund Managers (PFMs), appointed by the PFRDA, manage the accumulated funds.
The NPS offers tax benefits under Section 80C of the Income Tax Act and an additional deduction under Section 80CCD(1B).
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Old Pension Scheme (OPS) vs. National Pension System (NPS)
The Old Pension Scheme (OPS) is a defined benefit plan that guarantees half of the last drawn salary as a lifelong pension, with adjustments based on pay commission recommendations. In contrast, the National Pension Scheme (NPS) is a defined contribution plan. Under the NPS, government employees contribute 10% of their basic salary, and the government matches this contribution. Additionally, the government provides an extra 14% contribution.
What is Government's Stance on OPS?
In December 2023, the Centre informed the Lok Sabha members that there are no immediate plans to revisit the implementation of the Old Pension Scheme (OPS) for its employees. Pankaj Chaudhary, the Minister of State in the Finance Ministry, stated in a written response that there are currently no considerations to reinstate the old pension scheme for Central Government employees hired after January 1, 2004.