The Center and some state governments are looking for ways to save pension reforms between the financially costly OPS and the National Pension System (NPS).
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Pension Scheme: With the increasing demand for better facilities to the common people of the country and the Old Pension System (OPS), the Central and some State Governments have decided to implement the economically costly OPS and national pension system (NPS) are looking for ways to save pension reforms. Simultaneously, an option being considered is to offer guaranteed pension to government employees at about 50% of the last pay drawn under NPS and to modify the existing scheme without putting too much burden on the exchequer.
At present, under NPS, also known as New Pension Scheme, withdrawal of 60% of the amount accumulated during the working years of an individual is allowed at the time of retirement. Such withdrawals are also tax-free. The remaining 40% is invested in an annuity, which is estimated to provide a pension equivalent to about 35% of the last salary drawn. However, this is not a guaranteed pension as the returns are linked to the market.
Officials believe that NPS can be revised in such a way that at the time of retirement, an employee gets back the contribution of around 41.7% (made up of contribution of 10% of salary) as a lump sum. An analysis has shown that if the remaining 58.3% corpus made up of Central/State Government contribution (14%) is annuitised, the pension in NPS can be around 50% of the last drawn salary.
The difference can be reduced by contributing a little more
The official said that if the actual returns are less than the guaranteed amount, the concerned government can bridge the gap by contributing a little more to the NPS. The only problem with this model is unlike OPS, which periodically revises pension upwards to adjust inflation and increment due to future pay commission awards, this would be a difficult task under NPS as Fund for pension will remain stable after retirement.
There are ways to solve this issue as well
Officials said there are ways to resolve this issue as well. Instead of investing pension funds in low-yielding annuities, keeping the funds under a scheme in the NPS system can generate higher returns (currently annuities generate around 5-6% while NPS returns are closer to 10%). Could. Capable of meeting the aspiration of periodic revision of pension. Whereas in the 8th Pay Commission, the possible increase in pay has been included to generate 50% of the last drawn pay.
Employees will be entitled to get more pension
NPS may still face many problems if people retire in large numbers immediately after the implementation of another pay commission. This would mean that without contributing much, they would be entitled to a much higher pension on the basis of revised pay. Officials say this can be revised by making a slightly higher contribution by the government, say 16% instead of 14%, or a slightly higher contribution to the pension fund from time to time based on actuarial analysis.
This scheme guarantees minimum monthly pension
From FY20 onwards, central government employees are eligible for a deduction of 24% of salary for NPS contribution (employees’ contribution 10% and employers’ share 14%) and 15 state governments subsequently deducted employers’ share from NPS in 14 % is increased. In the government-backed Atal Pension Yojana, which guarantees a minimum monthly pension of Rs 1,000-5,000 to low-income group subscribers based on their contribution, actuarial estimates found a fund gap of Rs 5,000-6,000 crore, which the Center is bridging Is.
These states have stopped new contribution
The Pension Fund Regulatory and Development Authority (PFRDA) has rejected the demand of Rajasthan, Chhattisgarh and Jharkhand for custody of accumulated funds under NPS after the announcement of return to OPS in 2022, saying that the law does not allow such withdrawal Is. These states have stopped fresh contribution to NPS.