Finance minister Nirmala Sitharaman on Monday categorically said states which have reverted to the fiscally unsustainable old pension system (OPS) can’t withdraw the accumulated corpus from the National Pension System (NPS) as these funds belong to the employees as per the law.
The minister was responding to questions relating to a demand raised by the Congress government in Rajasthan, which has sought the return of the NPS corpus, but the Centre has declined to do so. Sitharaman said like in the Employees Provident Fund Organisation (EPFO), the corpus in NPS belongs to subscribers.
After the Centre rolled out the contributory NPS scheme for its new staff from 2004, most states followed suit and joined the scheme.
“If one state expects that the funds deposited with the EPFO should be given to the states. If this is the expectation, then, no. (Similarly,) employees have the entitlement to the money (under NPS). The money deposited will come into the hands of the government, it is impossible,” Sitharaman said speaking at a post-budget event at Jaipur
The NPS corpus is overseen by the Pension Fund Regulatory and Development Authority (PFRDA) and managed by various fund managers.
Also, withdrawals from NPS by state government employees won’t be possible fully before retirement, according to PFRDA regulations that specify that though a subscriber can prematurely withdraw from NPS after five years of enrollment, she can only withdraw 20% of the corpus. The balance 80% has to be invested in an annuity scheme.
Upon superannuation, 60% of the accumulated corpus from contributions during a person’s working years is allowed to be withdrawn at the time of retirement. Such a withdrawal is also tax-free. The balance 40% is invested in annuities to generate a monthly pension.
Besides Rajasthan, Chhattisgarh, Jharkhand and Punjab — have announced their plan to revert to the OPS (defined benefits scheme) from the NPS (defined contribution scheme).
Speaking at the Jaipur event, finance secretary TV Somanathan said: “Old pension scheme is an unfunded pension scheme, which means that the employee works today he gets his salary today, but the pension costs are not accounted for or paid today.” “So in the old pension scheme, the liability gets deferred to other governments and other generations.”
While ruling out reversing the pension reforms and going back to the fiscally-disastrous unfunded OPS, which entails 50% of the last pay drawn as pension from the budget to the pre-2004 staff, the political executive is conscious of the increasing resonance of demand for OPS amid a spate of state/general elections in 2023-2024.
With demand growing for the OPS with assured benefits, the Centre and some state governments are exploring ways to salvage pension reforms, by treading a middle path between the fiscally-expensive OPS and the reform-oriented NPS.