Tweaks in NPS? Finance Ministry denies report, says committee still deliberating clauses

The Union Ministry of Finance on Thursday denied that the Narendra Modi-led government is trying to bring in changes in the existing National Pension Scheme by offering government employees a minimum pension of 40-45 per cent of their last drawn salary. 

On Wednesday, Reuters reported that the government is trying to bring in changes in the current market-linked pension scheme to assuage some holdout states. The report said that the government has set up a committee in April to review the pension system ahead of the general elections in 2024, where PM Narendra Modi is eyeing a third consecutive term. 

On Thursday, the Finance Ministry tweeted that the news report is false. The Centre’s committee, which was set up under the chairmanship of the Finance Secretary, is at present in the midst of its deliberations and is in the process of consulting stakeholders. 

“This is in reference to a news report carried in various news papers, purporting to give details of certain specific percentage of pension being proposed by the Government for the employees under National Pension System #NPS. This news report is false,” the ministry tweeted.

It added: “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.”

The Modi-led government has been concerned over the current pension system after some states switched back to the older pension system (OPS).

The current National Pension Scheme requires employees to contribute 10 per cent of their basic salary. However, the final payout/corpus depends on the market-based returns on that corpus, which is mostly invested in Government debt securities. The NPS has been applicable to employees who joined the government service from April 1, 2004.

In comparison, the old pension scheme subscribers don’t have to contribute anything during their working life.

The report said that the Government is not planning to go back to the old pension system, two sources quoted in the report said. 

The officials quoted in the report said that under the current NPS, employees get around 38 per cent of their last salary as a pension. In case the Government guarantees a 40 per cent return, it will have to cover only a 2 per cent shortfall. However, the Government expense will increase if the market-linked returns decline anytime in the future.

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.”

Mohanty 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.” 

He further 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.

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