Central Government to form panel to look into issues on Pension Schemes

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Centre on Friday decide to set up a committee under the chairmanship of finance secretary to look into the issues related to New pension scheme. It was formed to improve New Pension Scheme(NPS) and also to address concerns of employees while maintaining Fiscal prudence.

This committee was formed at a time when several non-BJP ruled states like Rajasthan, Chattisgarh, Jharkhand, Punjab and Himachal Pradesh have informed Central Government their decision to revert to old pension scheme. They have also requested Center to refund the corpus accumulated under New Pension Scheme.

However, Centre decided not entertain any requests from states to revert to old Pension Scheme.

About New Pension Scheme:

The National Pension System (NPS) was introduced for Central Government employees w.e.f. 01.01.2004 for all new recruits joining the Central Government service (except armed forces) from 01.01.2004.  

As Central Civil Services (Pension) Rules, 1972 were amended benefits of old pension scheme not admissible to the Central Government civil servants appointed on or after 01.01.2004, under the amended rules.

The returns being market linked is a basic design feature of the National Pension System (NPS), however, pension being a long term product also enables the investments to grow with decent returns, despite short term volatility. Further, the prudential guidelines stipulated by the Pension Fund Regulatory and Development Authority (PFRDA), the skills of the professional Fund Managers chosen through a rigorous process, and choice of asset allocation across various asset classes (Equity, Corporate Bond, Government Securities) enable the subscriber’s accumulations to grow over the long term, riding over the short term volatility.

To safeguard the interest of the subscribers against any possible erosion of the pension wealth in times of an economic downturn, the exposure of equity/ equity linked instruments have been limited to only 15 % in the default scheme, which is made available to the Government subscribers in a default mode. Equity exposure exceeding this limit of 15%  is only available for the subscribers who choose to exercise individual investment choice while moving out of the default scheme. Further, risk averse subscribers can also choose to invest their entire contribution (100%) in Government bonds.

About Old Pension Scheme:

The old pension scheme was introduced in the 1950. It is applicable only to Government employees. Under this scheme, those who completed 10 years of service will get 50% of their last drawn basic salary and Dearness allowance or average wages of previous 10 months whichever is favorable as a pension on Retirement. There is no requirement of employees contribution under this scheme.

Difference between Old and New Pension Scheme:

Unlike old pension scheme where employees get guaranteed pension, in New pension scheme, return cannot be Guaranteed as it is subject to market risks.

Under old pension scheme, income is exempted from taxation where as in new scheme, 60% of corpus on maturity is tax-free and remaining 40% is taxable when invested in annuities.

Only Government employees can get benefit under old pension scheme where as in new scheme, all the citizens between 18 and 65 years can subscribe.

In old pension scheme, There is no requirement of employees contribution. In the new pension scheme, employees are required to contribute 10% of their salaries, while employers can contribute up to 14%.

Reverting to old pension scheme is neither a good idea as it is found that some states are required to spend two third of their tax revenue on pension alone. It will add to fiscal burden on states in coming years.

Live Mint, Mint Genie, PIB - 1, PFRDA, Economic Times - 1, Economic Times - 2, Hindustan Times, 

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