The Central and some state governments are considering an option to offer around 50% of the last pay drawn as guaranteed pension to Government employees under the National Pension System (NPS), The Financial Express reported today. (Read full story)
The report comes amid demands by several states to restore the Old Pension Scheme (OPS), which provided guaranteed pensions to Government employees.
As per the report, the Government may ensure 50% of the last pay drawn as guaranteed pension under NPS to Government employees by tweaking the norms of the existing scheme without burdening the exchequer too much.
NPS is a defined contribution scheme where returns depend on the income made by the invested amount. Whereas, the OPS was a defined benefits scheme. Recently, several opposition-ruled states announced the decision to restore OPS for their respective employees.
NPS norms tweak: No confirmation yet
It needs to be noted that no confirmation about tweaking NPS norms to offer guaranteed pensions has yet been made by the Government. However, any decision to offer guaranteed pension under NPS will provide huge relief to government employees while also ending the ongoing tussles between the Centre and states over the pension scheme issue.
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No proposal to restore OPS
Till now the Government has rejected the demand for restoring OPS and said that there is no such proposal under consideration
“The National Pension System (NPS) was introduced by the Government of India to replace the defined benefit pension system by defined contribution pension scheme in order to provide old age income security in a fiscally sustainable manner and to channelize the small savings into productive sectors of the economy through prudential investments. Representations have been received from time to time which include the request for restoration of Old Pension Scheme. There is no proposal under consideration of Government of India for restoration of old pension scheme in respect of Central Government employees recruited on or after 01.01.2004,” Union Minister of State for Finance, Dr Bhagwat Karad said in a written reply to a query in the Rajya Sabha on February 7.
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Dr Karad also said that the Government has taken several steps to streamline NPS for Central Government employees and to protect the interests of subscribers. Some of these steps include:
– Enhancement of the Government’s contribution from the earlier 10% of Pay + DA to 14% of Pay + DA
– Freedom of choice for selection of Pension Funds and pattern of investment to subscribers
– Payment of compensation for non-deposit or delayed deposit of NPS contributions for any period during 2004-2012
– Tax exemption under Section 80C of the Income Tax Act, 1961 and an increase in tax exemption limit for lump sum withdrawal on exit from earlier 40% to 60% of the amount due, making the entire withdrawal exempt from income tax.