The Cabinet on Thursday raised the government's contribution to National Pension Scheme (NPS) to 14% (from exiting 10%) of basic salary from the current 10 per cent. The minimum employee contribution will remain unchanged at 10%
Also, employees will have the option to invest in either fixed income instruments or equities.
Another big benefit is that at the time of retirement, the employee can now withdraw up to 60% as against the existing 40%. This would mean that amount of mandatory annuity corpus will be 40 per cent of the retirement funds.
If the employee decides not to commute any portion of the accumulated fund in NPS at the time of retirement and transfers 100 per cent to annuity scheme, then his pension would be more than 50 per cent of his last drawn pay, sources said.
The government did not announce the decision in view of the ensuing polls in Rajasthan Friday.
The government also proposes to bring tax breaks for the employee contribution towards NPS, sources added.
As some of these decisions require amendment to the Finance Act, the Centre is likely to bring amendments in the Budget session.
The changes in the NPS was worked out by the Finance Ministry based on the recommendation of a government-appointed committee.