NPS for State Government Employees: PFRDA clarifies on choice of pension funds and investment pattern

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Updated: Jun 09, 2020 1:38 PM

The monthly contribution of 10 per cent of the Basic Pay plus Dearness Allowance is to be paid by the employee and 14 per cent of the Basic Pay plus DA by the Central Government.

 central government employees, Dearness Allowance, NPS, pfrda, Basic Pay, Tier-I Of NPSHere are some of the NPS rules introduced for central government employees.

Central Government Employees NPS: Back in 2019, several changes were introduced in National Pension System (NPS) for the Central government employees. This was made effective through a Gazette Notification dated 31-01- 2019 issued by the Dept. of Financial Service (DFS), Ministry of Finance (MoF), after which the PFRDA had introduced the new rules. However, things were not clear whether State Governments (SG), State Autonomous Bodies (SABs) & Central Autonomous Bodies (CABs) can also apply the rules on their employees.

Early this month, The Pension Fund Regulatory & Development Authority (PFRDA) issued a circular saying that it has been brought to their notice that while some of the State Governments, SABs and CABs have either partially or wholly adopted the provisions of Gazette Notification F. No.1/3/2016-PR. dated 31-01-2019 issued by Dept. of Financial Service (DFS), Ministry of Finance (MoF), others have been seeking clarifications on the same.

PFRDA in its circular has clarified that the State Governments, SABs and CABs are free to adopt the provisions of the said Gazette notifications on their own volition, based on their own internal approvals and notifications, without seeking the Authority’s approval.

The PFRDA circular dated June 1, 2020 clarifies about the choice of Pension Funds and Investment Pattern in Tier I of NPS for the Government subscribers employed with State Governments, SABs and CABs.

Some of the NPS rules introduced for central government employees were:

I. Enhancement in Government Co- Contribution

The monthly contribution of 10 per cent of the Basic Pay plus Dearness Allowance (DA) to be paid by the employee and 14 per cent of the Basic Pay plus DA by the Central Government.

II. Choice of Pension Fund And Investment Pattern In Tier-I Of NPS as under:

1.  Choice of  Pension  Fund: The  Government subscriber is allowed to choose any one of the pension funds including private sector pension funds and can change their option once in a year. The provision of a combination of Public Sector Pension Funds will be available as a default option for existing as well as new Government subscriber.

2.  Choice of  Investment Pattern:   The following    options for investment choices shall be offered to Government subscribers

(i) Default Scheme: The existing scheme in which funds are allocated among three Public Sector undertaking fund managers shall continue as default scheme for both existing and new subscribers.

(ii) Scheme G: Employees who prefer returns with comparatively less amount of risk shall be given an option to invest 100% of the funds in Govt. securities. (Scheme G)

(iii) Auto Choice Life Cycle Funds: Employees preferring better returns with comparatively higher risk shall be given the options of the following Life Cycle based schemes-

a) Conservative Life Cycle Fund with maximum exposure to equity capped at 25%- LC-25 Scheme.

b) Moderate  Life  Cycle  Fund  with  maximum  exposure  to equity capped a 50 LC- 50 Scheme

The Government subscribers may exercise one of the above choices of Investment pattern twice in a financial year.

III. Implementation of choices to the legacy corpus:

Transfer of huge legacy corpus in respect of the Government subscribers from the existing Pension Funds is likely to impact the market. It may be practically difficult for the PFRDA to allow Government subscribers to change the Pension Funds or investment pattern in respect of the accumulated corpus, in one go. Therefore, for the present, change in the Pension Funds or investment pattern is allowed in respect of the incremental flows only.

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