The government is reportedly considering amending the National Pension System (NPS) by the end of the year to ensure that employees get at least 40-45 per cent of their last drawn salary as retirement payout. The plan to amend the scheme is being considered following recommendations on the issue by a high-level panel.
The NPS, which was launched in 2004 does not offer guaranteed base amounts as was offered before in the Old Pension Scheme (OPS). The OPS offered pensioners monthly benefits amounting to 50 per cent of their last drawn salary at retirement.
Now, after modifications, the NPS will see changes in “actuarial calculations” in order to offer higher returns, Mint quoted an official as saying. There is also a possibility of changes in the share of contributions made by the employee and the employer for both the central and state governments.
“It is possible to assure a base amount as payout depending on how the actuarial framework is arrived at,” the paper quoted an official as saying.
The issue of pension is currently a hot topic with several Opposition-ruled states restoring the OPS recently. The current scheme is also being criticised over employee contribution, which wasn’t the case with OPS, as the government used to contribute the entire amount.
In the current scenario 10 per cent of contribution comes from the salary of the employee and the 14 per cent contribution comes from government. Also, in NPS, pensioners are allowed tax-free withdrawal up to 60 of the corpus at the time of retirement and the balance 40 per cent is to be used for buying an annuity, payments from which are taxable.
Opposition-ruled states including Rajasthan, Chhattisgarh, Jharkhand, Himachal Pradesh and Punjab have restored the OPS, which has however been criticised by many.
The Reserve Bank of India (RBI) said in a recent study in September 2023 that a shift back to OPS would impose a financial burden of four-and-a-half times on the government as compared to the existing NPS and push state governments into bankruptcy.
Recently thousands of government employees also participated in the “Pension Shankaanaad Rally” organised by the National Movement for Old Pension Scheme (NMOPS) at Ramlila Maidan in Delhi.