The new Bharatiya Janata Party (BJP)-led National Democratic Alliance (NDA) government is set to offer a significant enhancement to the pension benefits for central government employees under the National Pension System (NPS), according to a report by the Financial Express. The idea marks a significant departure from the present market-based returns system by guaranteeing up to 50% of the last basic wage as a pension.
A committee headed by Finance Secretary T V Somanathan was formed by the Narendra Modi administration in March 2023 to investigate ways to enhance pension benefits under the New Pension System (NPS) without going back to the non-contributory Old Pension System (OPS), which has been determined to be financially unfeasible. This occurred at the same time when numerous states started switching from NPS to OPS.
The panel, which included Annie Matthew, Deepak Mohanty, head of the Pension Fund Regulatory and Development Authority, and Radha Chauhan, special secretary in the Finance Ministry’s Expenditure Department, was not given a timetable for completing this work.
The May study from the committee largely resembles the 2023 Andhra Pradesh NPS plan, according to FE.
What is the Andhra Pradesh NPS model?
The Andhra Pradesh Guaranteed Pension System (APGPS) Act, 2023 provides a monthly pension equal to 50% of the most recent basic pay drawn in situations where the annuity is insufficient.
Furthermore, a monthly annuity equivalent to 60% of the insured sum is assured to the surviving spouse of a dead subscriber. According to the Act, cost of living increases based on inflation would likewise be applied to the most recent basic pay draw.
The APGPS Act further provides that partial and final withdrawals will diminish the guaranteed pension in proportion, guaranteeing the system’s sustainability while offering retired workers increased benefits.
What does this NPS proposal say?
According to the proposed plan, a pension of 40–50% of the last pay would be guaranteed, with modifications made for years of service and any pension corpus withdrawals. The budget of the central government would make up any shortfall in the pension corpus needed to achieve the guaranteed pension level.
About 8.7 million federal and state employees who have been enrolled in the NPS since 2004 stand to gain from this if it is put into practice.
The Financial Express article indicates that investing the entire accrued corpus in annuities or other products could yield returns sufficient to give a pension equal to 50% of the last wage drawn, even though the precise cost of the guaranteed annuity has not been calculated.
National Pension System (NPS) vs. Old Pension Scheme (OPS)
Pre-2004 government workers are eligible for a pension under the OPS of 50% of their final salary, if they had worked for the government continuously for at least 20 years. Ten to twenty years of work earns a pro rata pension that is double-adjusted for inflation every two years.
On the other hand, the present NPS stipulates that in order to produce a monthly pension that is subject to annuity returns and is not guaranteed, at least 40% of the total contributions must be invested in annuities. You can withdraw the remaining 60% tax-free.