NPS returns are market-linked. This means that returns are not guaranteed but depend on market performance and the fund manager. Currently, the government contributes 14% of pay and employee contributes 10% to the NPS corpus. Compared to the old pension scheme (OPS), the pension received by some retirees under NPS was paltry under NPS. Hence, the employees’ unions have been demanding the government-guaranteed pension under NPS.
Also, in view of, the announcement made by some states like Punjab, Rajasthan, Chhattisgarh, and Jharkhand to return to the Old Pension Scheme (OPS) for their employees. The Government of India set up a committee under the leadership of the Finance Secretary to suggest ways to address the demand for a guaranteed pension under the NPS for the government staff at a decent level, without burdening the exchequer too much.
In the case of OPS, a government employee is entitled to 50% of his last salary as a pension if he has completed 33 years of uninterrupted service. Employees with uninterrupted service of more than 10 years and less than 33 years are entitled to pension on a pro-rata basis. Also, their pension gets inflation-adjusted Dearness Relief on basic pension. A Reserve Bank of India (RBI) paper on Monday warned that the fiscal cost of OPS could be as high as 4.5 times that of the NPS, in the event of all the states switching to OPS from 2023.
Earlier, the insurance regulator Pension Fund Regulatory and Development Authority (PFRDA) said that it is expected to launch its first minimum assured return scheme under the National Pension System (NPS) for non-government subscribers in May-June 2023. The fund is expected to give 4-5 percent guaranteed income on the pension corpus for 10 years, besides market-linked return. While the level of guarantee, if so suggested, could depend on actuarial analysis factoring in the longevity of retirees and contributions, analysts believe that 35-40% could be feasible by tweaking the current structure of NPS. However, the cost for such a guarantee is required to be shared by employees.
NPS for the non-government sector has been introduced in two models viz. ‘NPS-Corporate sector’ model and ‘All citizens’ model. The corporate sector model provides NPS benefits to the employees of corporate entities whereas; all citizen models offer NPS to all citizens in the age group of 18 to 60 years.
The New Pension System (NPS) is built in a tiers structure viz. Tier-I and Tier-II accounts. Tier–I account is a compulsory account for those who want to join the scheme. The subscriber has to contribute a minimum of Rs.6000 every year either in lump-sum or in installments. The minimum contribution is Rs.500 at one time. There is no upper limit for the number of transactions.
Tier II is the voluntary account of the subscriber. The minimum contribution for opening a Tier-II account is Rs.1000/-. The account holder can deposit and withdraw money available in the account keeping the minimum balance of Rs.2000/- in the Tier II account. Compliance with KYC formality like address proof, identity proof, and age proof are common for both Tier-I & Tier –II accounts. PAN card copy and Bank account details are mandatory for opening a Tier-II account. The subscriber has the option to choose separate schemes and separate PFM for Tier-I & Tier-II accounts. The subscriber who prefers to remit to a tier II account in installments shall contribute a minimum of Rs.250 at one time and a minimum deposit of Rs.2000 in a year. There is no upper limit for the number of transactions.
NPS-Pension Scheme:
Subscribers after attaining the age of 60 years can exit from NPS. As per the revised rule ( Circular no.: PFRDA/2021/36/SUP-CRA/14 August 26, 2021), any Indian Citizen, resident or non-resident, and Overseas Citizen of India (OCI) between the age of 65-70 years can join NPS and continue or defer their NPS Account up to the age of 75 years.
A minimum 40% of wealth accumulated in a Tier-I account shall be annuitized at the time of exit. In normal cases, the balance available in Tier-I cannot be withdrawn before the subscriber attains the age of 60 years. But in certain cases, the subscriber is allowed to withdraw 20% of the balance in the account before completing 60 years of age. In such cases, 80% of the accumulated balance will be annuitized. The Annuity Service Providers would ensure the delivery of a regular monthly pension to the subscriber from the income received from the annuitized corpus fund. The wealth accumulated in excess of the annuitized amount will be paid to the subscriber. If the subscriber wishes to defer the lump-sum withdrawal, he can defer the withdrawal up to the age of 70 years.
