National Pension Scheme Amendment: The Central Government can amend the National Pension Scheme (NPS) by the end of this year. The issue of pension has become a point of controversy, especially when the Old Pension Scheme (OPS) has been reinstated in opposition ruled states and the same was the demand of the people.
National Pension Scheme Amendment: The Central Government can amend the National Pension Scheme (NPS) by the end of this year. A newspaper report quoted sources as saying, ‘The government is going to make changes on the recommendations of a high-level committee currently investigating the matter, which is aimed at guaranteeing that employees will be paid on the basis of their final salary. At least 40-45 percent retirement payment should be received.
The issue of pension has become a point of controversy, especially when the Old Pension Scheme (OPS) has been reinstated in opposition ruled states and the same was the demand of the people. According to several reports, under OPS, pensioners get a monthly benefit equal to 50 percent of their salary at the time of retirement. However, we do not confirm this.
When did NPS start?
NPS, introduced in 2004, works on a market-linked model without a guaranteed base amount, unlike OPS, which does not require employee contributions. In the NPS, employees contribute 10 per cent of their salary, while the government contributes 14 per cent, which has intensified the debate over a more favorable pension scheme. The point is that the absence of guaranteed base and mandatory employee contribution is the crux of this ongoing discussion.
Media reports said the proposed adjustments to the revised NPS are likely to include amendments in the actuarial calculations aimed at providing higher returns for beneficiaries. At the same time, these adjustments seek to ensure a more balanced and optimized distribution of contributions within the pension scheme, aiming to increase overall effectiveness and benefits for the stakeholders involved.
What is the benefit of NPS?
Under NPS, retirees have the option to withdraw 60 per cent of the accumulated amount tax-free at the time of retirement, with the remaining 40 per cent being used to buy annuity. At the same time, the remaining 40 percent payment is taxable.
Many states ruled by opposition parties like Rajasthan, Chhattisgarh, Jharkhand, Himachal Pradesh and Punjab have opted to return to OPS. However, economists have warned that the move could potentially put pressure on the state’s finances, potentially creating financial challenges for state governments.
OPS is financially unstable and
about 87 lakh federal and state government employees contribute 10 per cent of their basic salary to the existing NPS, while the government contributes 14 per cent. The final payout is based on the returns generated by the fund, which is primarily invested in government debt instruments.
OPS is considered financially unstable. Soumya Kanti Ghosh, group chief economic adviser at State Bank of India, India’s largest lender, has expressed concern that returning to OPS could increase the debt burden of state governments.
