Many states are trying to restore Old Pension Scheme and discontinue the National Pension System (NPS).

What is the Defined Pension Benefit Scheme (old)?

• The scheme assures life-long income, post-retirement.
• Usually the assured amount is equivalent to 50% of the last drawn salary.
• The Government bears the expenditure incurred on the pension.
• The scheme was discontinued in 2004.

What is the National Pension System (NPS)?

• The Union government under PM Vajpayee took a decision in 2003 to discontinue the old pension scheme and introduced the NPS.
• The scheme is applicable to all new recruits joining the Central Government service (except armed forces) from April 1, 2004.
• On the introduction of NPS, the Central Civil Services (Pension) Rules, 1972 was amended.

Features of NPS

• It is a scheme, where employees contribute to their pension corpus from their salaries, with matching contributions from the government.
• The funds are invested in earmarked investment schemes through Pension Fund Managers.
• At retirement, they can withdraw 60% of the corpus, which is tax-free and the remaining 40% is invested in annuities, which is taxed.
• It can have two components — Tier I and II.
• Tier-II is a voluntary savings account that offers flexibility in terms of withdrawal, and one can withdraw at any point of time, unlike Tier I account.
• Private individuals can opt for the scheme.

What were the changes introduced in 2019?

• In 2019, the Finance Ministry said that Central government employees have the option of selecting the Pension Funds (PFs) and Investment Pattern in their Tier-I account.
• The default pension fund managers are the LIC Pension Fund Limited, SBI Pension Funds Pvt. Limited and UTI Retirement Solutions Limited in a predefined proportion.

Who is the regulatory authority?

• The Pension Fund Regulatory and Development Authority (PFRDA) is the regulator for NPS.
• PFRDA was set up through the PFRDA Act in 2013 to promote old age income security by developing pension funds to protect the interest of subscribers to schemes of pension funds.

What is the subscriber base?

• As on February 28, there were 22.74 lakh Central government employees and 55.44 lakh State government employees enrolled under the NPS.

Why in news now?

• In Feb, Rajasthan CM announced restoration of the old pension scheme for the government employees, who joined the service on or after January 1, 2004.
• The announcement meant that the National Pension System (NPS) would be discontinued in the State.
• The center had maintained that restoration of the old system would cause an unnecessary financial burden on the government.

Cons of NPS

• Forfeiture of pension: The NPS scheme was created by the Government of India, in order to stop all the defined pension related benefits that it gave to its employees.
• Withdrawal restrictions: NPS restricts all kinds of withdrawals, before the subscriber reaches the age of 60 years.
• No tax benefits: The NPS corpus, which the subscriber can use for buying annuity or for drawing pensions, is taxable, when the schemes matures.
• Limit on investment: The subscriber cannot invest more than 50% of his or her total investment in the NPS account, towards the equities.
• No guarantee: While NPS is a government scheme, the corpus is created according to the returns, which are generated under the corporate bonds, government securities, and equity.

Try this PYQ:

Q.Who among the following can join the National Pension System (NPS)?

(a) Resident Indian citizens only

(b) Persons of age from 21 to 55 only

(c) All-State Government employees joining the services after the date of notification by the respective State Governments

(d) All Central Governments Employees including those of Armed Forces joining the services on or after 1^st April 2004

 

Post your answers here.

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