10 Apr, 2023 11:58 AM

What the government might implement under NPS?

What the government might implement under NPS?

The Finance Ministry has notified the formation of a panel to review the National Pension Scheme as it applies to state and central government employees. The proposal for the panel was mooted in Parliament last month by Finance Minister Nirmala Sitharaman.

The committee will be headed by Finance Secretary TV Somnathan, according to a notification issued by the Department of Expenditure.

The committee will discuss whether any changes are needed to NPS as applicable to government employees, and suggest measures to improve the scheme.

What the government might implement under NPS?

According to people familiar with the government's deliberations, the Centre is proposing up to 50% of last drawn pay as guaranteed benefits for central government employees under NPS. The states can also follow this model.

Employees can currently take up to 60% of their pension corpus, with the remaining 40% required to be invested in annuities.

The invested component can provide returns of up to 35% of the previous drew pay, but this is not guaranteed.

Employees may be permitted to withdraw up to 41.7 percent of their pension corpus under a new matrix being explored by the government, according to officials.

The remaining amount may be turned into an annuity which could roughly equal nearly 50 per cent of the employee’s last drawn pay.

In the event of a shortfall, the government may bridge the pension pay gap, said one of the officials cited above.

This model won't be inflation-indexed, in contrast to OPS, the person added. There may not be a Dearness Relief component.

According to the aforementioned officials, this issue might be solved by maintaining the leftover funds in an NPS plan rather than investing them in low-yield annuities with poor returns (up to 5%), as is currently the case.

The setting up of the Eight Pay Commission may increase the 50% of the latest drawn pay figure.

This may be impacted if a large number of workers retire, but the government may make up any gap by increasing contributions from 14% to roughly 16%. According to the officials, the government may also support rising pension outflows by using the pension capital amounts of retirees and those who pass away.

Guaranteed Pension Scheme

A third alternative high-return pension plan has been put out by the Jagan Mohan Reddy-led government of Andhra Pradesh. As the name implies, this plan would guarantee government workers a minimum return of 33–40% of their most recent paycheck.

The plan envisions two possibilities:

Employees under the first option may contribute 10%, with matching funds provided by the government, and a minimum guaranteed return of 33% of last drawn salary.

The second choice offers up to 40 returns based on an employee contribution of 14% and a matching contribution from the government.

According to Adhra Pradesh Finance Minister Buggana Rajendranath, the returns will be up to 70% greater than the present payout.

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