Union Budget 2024: Central govt staff may get 50% of last pay drawn as pension under NPS

Union Budget: The NDA government may offer 50% of the final pay drawn as a pension for central government employees who have enrolled under the National Pension System. This would be done in order to address their concerns regarding pension payouts, even though the Centre has said that the NPS will offer attractive returns for those who remain invested for 25-30 years, especially for those recruited after 2004. 

A committee, led by finance secretary T V Somanathan, was established following an announcement by finance minister Nirmala Sitharaman. While the government has rejected the return of the Old Pension Scheme (OPS), it is open to providing a certain level of reassurance, especially in light of the recent announcement by the Congress to reverse a decision made by the previous government under Manmohan Singh.

Budget expectations

The Somanathan committee has reviewed global practices and analysed the adjustments implemented by the Andhra Pradesh government. In addition, comprehensive calculations have been conducted to evaluate the impact of ensuring a specific return. While the Centre could potentially provide a guarantee of 40-45%, it may not fully address the concerns of employees with decades of service. 

Consequently, there is a trending acceptance within the government to consider a 50% guarantee, where the government would step in to bridge any shortfall if needed, the report said.

The committee members deem it necessary to conduct an annual assessment of the scheme. This recommendation arises from the unfavourable comparison with the government pension system, which operates without funding due to the absence of a retirement fund within the Centre. 

It is anticipated that the Centre will institute a retirement fund in Budget 2024, aligning its practices with companies that offer retirement benefits to their employees.

Old Pension Scheme

The OPS is a defined benefit scheme that guarantees half of the last salary drawn as pension for life, with adjustments based on pay commission recommendations. On the other hand, the NPS is a defined contribution scheme where government employees contribute 10% of their basic salary, with the government matching the contribution.  Under this scheme, government employees contribute 10% of their basic salary, and the Centre provides a 14% contribution. 

On January 11, 2024, the Joint Forum for Restoration of Old Pension Scheme (NJCA), established under the umbrella of the NJCA, forwarded a memorandum to the finance ministry. The memorandum advocated for the restoration of the non-contributory and guaranteed Old Pension Scheme, in place of the contributory National Pension System, for central government employees. The reinstatement applies to employees hired on or after January 1, 2004.

The department of expenditure of the finance ministry responded to the demand for the Guaranteed Old Pension Scheme (OPS) to replace the existing National Pension System (NPS) for central government employees, as requested by the Joint Forum for Restoration of Old Pension Scheme (NJCA). "It is informed that the Committee formed under the Chairmanship of FS & SE to look into the issue of NPS has already had two rounds of detailed discussion with the Staff Side of National Council (JCM) and the valuable views of the NC(JCM) have already been noted by the Committee," the department said.

Govt on OPS

In December 2023, the Centre told the Lok Sabha members that there are no immediate plans to revisit the implementation of the Old Pension System for its employees. Pankaj Chaudhary, Minister of State in the Finance Ministry, stated in a written response in Lok Sabha that there are currently no considerations to reintroduce the old pension scheme for Central Government employees who were recruited after January 1, 2004. 

Despite receiving numerous requests over time, including pleas for the reinstatement of the old pension scheme, the government is not actively pursuing this course of action at the moment.