If you are a central government official, your choice of pension funds (PFs) under the National Pension System (NPS) is set to more than double after the Union Cabinet gave approval to the 7th Pay Commission report on Wednesday.
With a massive inflow of funds likely to come to the NPS from central government officials by way of increased pay and arrears, the Pension Fund Regulatory and Development Authority (PFRDA) is set to expand the choice of pension fund (PFs) available for the government sector from three fund managers at present to seven.
A proposal to this effect has already been sent to the government by the pension regulator. “At present, we have three pension fund options for the government sector NPS. Our proposal to the government is that it should be opened to all the fund manager that are licenced by PFRDA including those who are managing funds of the non-government sector NPS,” Chairman, PFRDA, Hemant Contractor, told FeMoney.
The three PFs for Government Sector are LIC pension Fund, Ltd, SBI Pension Funds Pvt Ltd and UTI Retirement Solutions Ltd. However, the non-government NPS has seven PFs including the three licenced for the government sector. Along with these three, HDFC Pension Management Co Ltd, ICICI Prudential Pension Fund Management Co Ltd, Kotak Mahindra Pension Fund Ltd and Reliance Capital Pension Fund Ltd are the non-government PFs.
Birla Sunlife Pension Management has been licensed for the non-government sector but is yet to commence business.
Pension fund is receive contributions and are tasked with accumulating the money and investing it to make payments to subscribers for pension as specified by the regulator.
Contributing to NPS for building a pension corpus is mandatory for all employees who have joined the Central Government, including Central Autonomous Bodies (except Armed Forces) on or after January 1, 2004. Taking a cue from the centre, several State Governments have adopted NPS for their employees.
Under NPS, a government employee is required to contribute 10 per cent of his salary plus DA into his Tier-I (pension) account on a mandatory basis every month which is invested along with the matching contribution from the employer.
The 7th Pay Commission has recommended a 23.55 per cent hike in pay and allowance. The impact the 7th Pay Commission recommendations on the government coffers will be to the tune of Rs 1.02 lakh crore. Nearly 47 lakh central government employees and 53 lakh pensioners would benefit from the 7th Pay Commission hike in salaries, while arrears will be paid with effect from January 1, 2016.
However, Hemant Contractor has said PFRDA has not been able to make an exact assessment on the increased amount that would flow into NPS due to the 7th Pay Commission recommendations since the full picture on payment schedule of arrears and other compensations is yet to emerge.