NPS Rules: Govt To Assure Employees Of 45% Pension? What Finance Ministry Says

Even as media reports said the central government is likely to assure its employees a minimum pension of 40-45 per cent of their last-drawn salary under NPS, the finance ministry on Thursday issued a clarification. It said a committee is at present in the midst of its deliberations and has not yet reached any conclusions whatsoever.

“This news report is false,” said the finance ministry in a tweet, in reference to news reports purporting to give details of certain specific percentage of pension being proposed by the Government for the employees under National Pension System (NPS)

The Committee, set up under the chairmanship of the Finance Secretary in pursuance of an announcement made by the Union Finance Minister in the Lok Sabha in the last Budget Session, is at present in the midst of its deliberations and is in the process of consulting stakeholders. The Committee has not yet reached any conclusions whatsoever.

According to a Reuters report quoted two officials, the government was planning to amend the NPS so that while both employees and the government still make contributions, employees get an assured 40-45 per cent of their last-drawn salary as pension.

The National Pension Scheme requires employees to contribute 10 per cent of their basic salary and the government 14 per cent. The eventual payout depends on the market returns on that corpus, which is mostly invested in debt.

In contrast, the old pension system guarantees a fixed pension of 50 per cent of an employee’s last-drawn salary, without requiring them to contribute anything during their working life.

The old pension scheme, referred to as the Defined Benefit Pension System (DBPS), is based on the last pay drawn by the employee. The NPS is referred as the Defined Contribution Pension System (DCPS), in which the employer and employee contribute to build a pension wealth payable at the time of retirement by way of annuity/lumpsum withdrawal as per norms.

Under the OPS, the employee could withdraw 50 per cent of the last-drawn salary as pension after the retirement.

Under the NPS, a person is allowed to withdraw 60 per cent of the accumulated corpus contributed during his/ her working years at the time of retirement, which is tax-free. The remaining 40 per cent is converted into an annuatised product, which could currently provide the person with a pension of 35 per cent of his/ her last-drawn pay.

The NPS is applicable to all employees joining services of the central government, including central autonomous bodies (except Armed Forces) on or after January 1, 2004. Many state governments have also adopted NPS architecture and implemented NPS mandatorily for their employees joining on or after a cut-off date.