Reformed NPS in Budget 2024? Guaranteed minimum pension and more

As the nation eagerly awaits the upcoming budget, speculations abound regarding potential reforms in the National Pension System (NPS). Despite the budget being a 'Vote on Account' due to the impending Lok Sabha Elections in 2024, sources suggest that Finance Minister Nirmala Sitharaman might unveil a significant tweak in the NPS.

Introduced by the Central Government on January 1, 2004, the NPS has been a subject of debate, with various quarters expressing a desire to revert to the old pension scheme. Responding to these demands, the central government had established a committee for pension reform in March 2023. This committee has recommended the implementation of a hybrid pension scheme, combining elements of both the old and new pension schemes.

Under the proposed scheme, the government aims to provide a guaranteed minimum pension, equivalent to 50% of the last drawn basic salary, according to sources close to the matter.

The new pension proposal is expected to be a sustainable solution without putting an undue burden on the exchequer. In the event of any shortfall, the government will step in to cover the gap, utilizing funds from the annuity fund. The guaranteed pension will comprise two components—an annuity segment and a top-up part, ensuring financial security for retirees.

Interestingly, Andhra Pradesh has already implemented a similar hybrid pension scheme, setting a precedent for the central government's potential move.

Several opposition-led states, including Himachal Pradesh, Karnataka, Jharkhand, and Tamil Nadu, have declared their intent to revert to the old pension scheme. In contrast, Rajasthan's Old Pension Scheme (OPS) was withdrawn by the new government formed last year.

Finance Minister Nirmala Sitharaman is slated to present the Interim Budget 2024 in Parliament this week, on February 1. This budget presentation will mark a historic moment for Sitharaman, surpassing the records set by her predecessors, including Manmohan Singh, Arun Jaitley, P Chidambaram, and Yashwant Sinha, who each presented five budgets in a row.

As anticipation builds, all eyes are on the Finance Minister to see how the proposed pension reforms will shape the financial landscape for retirees and the government's commitment to addressing the concerns surrounding the National Pension System.