Govt exploring ways to make NPS more attractive

With some Opposition-controlled states announcing plans to reintroduce the old defined-benefit pension scheme (OPS) for their employees and abandon the reform-oriented contributory national pension system (NPS), the Union government may suggest annuitizing the entire government contribution to NPS as an alternative.

To improve their pension payouts, the government is considering enabling employees to invest more than 40% of the NPS corpus in systematic withdrawal plans and inflation-indexed products.

Under the NPS, a person can withdraw 60% of the accumulated corpus from contributions made during their working years when they retire. It is also tax-free to make such a withdrawal. The remaining 40% is invested in annuities, which might offer a pension equivalent to around 35% of the last salary drawn, according to estimates. Government employees used to receive 50% of their last wage as a pension under the OPS.

If 60% of the contribution is annuitized, which generally matches to the contribution by the federal and state governments, the NPS pension can be close to 45 per cent of the last drawn wage. The 5% deficit can be closed by the concerned government donating a bit more to the NPS. According to an authoritative source, this is considered a far better option than reintroducing the unsustainable OPS model. Employees will also be able to withdraw the corpus altogether from their personal contributions at the time of their departure.

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