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Tweaks in NPS? Central govt likely to offer assured base pension, says report

Tweaks in NPS? Central govt likely to offer assured base pension, says report

The current National Pension Scheme requires employees to contribute 10 per cent of their basic salary. In comparison, the old pension scheme subscribers don’t have to contribute anything during their working life.

Business Today Desk
Business Today Desk
  • Updated Jun 21, 2023 5:30 PM IST
Tweaks in NPS? Central govt likely to offer assured base pension, says reportThe move comes after the government set up a committee in April to review the pension system

The Narendra Modi-led government may offer its employees a minimum pension of 40-45 per cent of their last drawn salary by making changes in the current National Pension Scheme, which was introduced in 2004, to assuage some holdout states, Reuters reported on Wednesday. 

The Centre had set up a committee in April to review the pension system. The current National Pension Scheme requires employees to contribute 10 per cent of their basic salary, whereas the government contributes 14 per cent. The final payout depends on the market returns on that corpus, which is mostly invested in government debt.  

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This pension-cum-invetsment plan allows you to build a reservoir for funds besides substantially reducing the tax liability of the investor.

In comparison, the old pension system guarantees a fixed pension of 50 per cent of an employee's last drawn salary. Under this, the pensioners don’t have to contribute anything during their working life.

Two officials quoted in the report stated the Centre is planning to amend the current scheme 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.

But, "we will not go back to the old pension system," said one senior government official.

Before this, the reintroduction of the old pension scheme by five states, including Rajasthan, Chhattisgarh, Jharkhand, Punjab and Himachal Pradesh, has kicked off a controversy.

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The current revamp, as per the Centre, will assuage the concerns of states that went back to the old pension system and cover the whole country with one fiscally sustainable pension scheme, both the sources told Reuters.

Earlier this month, Pension Fund Regulatory and Development Authority Chairman Deepak Mohanty said the regulator was working on a pension scheme that could provide a minimum assured return. He said: “We are considering an assured return product. We will come out with that product soon. However, one would have to see that the returns are attractive.”

He also said Atal Pension Yojana (APY) enrolments have shown a continuously increasing trend since the scheme’s inception, with 53.3 million subscribers enrolled at present. 

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He further added: “That is very much in the works…there we have to balance risk and return…somebody gives assurance, and it will come with a cost as more risk is involved.” 

Mohanty said that when it is a case of assured returns, the pension fund has to provide more capital. The regulator further explained that the minimum assured return scheme would come up with a higher premium to offer attractive rates.

On an average,  APY has generated 9 per cent return, in contrast, NPS has given more than 12 per cent returns (in equity) since its inception.

New NPS Withdrawal Rules

National Pension System (NPS) subscribers will soon get a new option for funds withdrawal as the pension fund regulator PFRDA plans to come out with a systematic withdrawal plan. "It is at a very advanced stage. Hopefully, by the end of next quarter we should be able to come out with a scheme like that," PFRDA Chairman Deepak Mohanty told PTI in an interview. Under the systematic withdrawal plan (SWP), investors can withdraw a predetermined amount of money at regular intervals from their investment holdings. 

At present, NPS subscribers after turning 60 years withdraw up to 60 per cent of the retirement corpus as a lumpsum, the rest 40 per cent of the corpus mandatorily goes into buying an annuity.

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Under the proposed systematic withdrawal plan, NPS subscribers can opt for periodic withdrawal — either monthly, quarterly, half-yearly, or annually, till the age of 75 years.

Published on: Jun 21, 2023 5:04 PM IST
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