Switch from NPS to Old Pension Scheme: What would happen to your NPS contributions?

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Published: June 17, 2020 9:02 AM

The Old Pension Scheme for the government employees, except for defence personnel, was replaced with the New Pension Scheme (now called National Pension System) from January 1, 2004.

Old Pension Scheme, government employees, defence personnel, Contributory Pension System, New Pension Scheme, National Pension System, NPS, employees' contribution to NPS, employers' contribution to NPS, governemnt's contribution to NPSon or after that date, need to make mandatory contributions every month from their salary to the NPS for pension purpose.

The Old Pension Scheme for the government employees, except for defence personnel, was replaced with the Contributory Pension System of New Pension Scheme (now called National Pension System) from January 1, 2004 and the employees, who joined on or after that date, need to make mandatory contributions every month from their salary to the NPS for pension purpose.

While employees contribute 10 per cent of their Basic Salary and Dearness Allowance (DA) every month, the government also used to make equal contributions. Although employers’ mandatory contributions may exceed 10 per cent, but the excess contributions will be taxable in the hands of employees, except for Central Government employees, for whom the tax-free employer’s contribution limit is 14 per cent.

However, the government employees who were successful for recruitment on or before December 31, 2003 against vacancies occurring before January 1, 2004 and are covered under the NPS on joining service on or after January 1, 2004 were allowed to switch to the Old Pension Scheme under the CCS(Pension) Rules, 1972.

Similarly, the employees who joined Central Government / Central Autonomous body during January 1, 2004 to October 28, 2009 after submitting technical resignation from Central Government / Central Body or a State Government / State Autonomous Body and are covered by NPS will also have an option to switch to the Old Pension Scheme.

Now, in case an eligible employee, who joined the service on January 1, 2004 under NPS, decides to switch to the Old Pension Scheme in 2020, what would happen to the employee’s and employer’s contributions to NPS for over 16 years?

According to the Office Memorandum issued by the Department of Pension and Pensioners’ Welfare on June 11, 2020, contributions and fund values of existing NPS accounts of the employees, who avail the option of switching to the Old Pension Scheme may be done in the following way.

  1. The employees’ contributions to NPS may be credited to the General Provident Fund (GPF) accounts of individual employees.
  2. Employers’ (government’s) contributions to be accounted for as (-) Debit to Object Head “70- Deduct Government Recoveries” under Major Head “2071 – Pension and other Retirement Benefits” and Minor Head “911 – Deduct Recoveries of Overpayments” (GAR 3S and Para 3.10 of LNMHL and Para 5.1.3 (iii) of Civil Accounts Manual refers).
  3. Adjustment on increased value of subscription in NPS on account of appreciation of investment may be accounted for by crediting the amount to Government Account under Major Head “0071 – Contribution & Recoveries towards Pension & other Retirement Benefits” and Minor Head “800 – Other-Receipts”.

However, it is not clear what would happen to the compound interest for about 11-16 years on GPF for the employees who opt to switch to the Old Pension Scheme after contributing to NPS from the month of joining service under NPS starting from 2004-2009, as the case may be.

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