BIG NEWS for Government Employees; FM Signals Reviewing of NPS

FM Nirmala Sitharaman’s Decision on the NPS:-

The Indian Finance Minister, Nirmala Sitharaman, has announced the formation of a committee to review the New Pension System (NPS), following demands from Some employees and opposition-governed states to revert to the old pension scheme. 

The committee, led by Finance Secretary TV Somanathan, will seek to balance the needs of employees with fiscal prudence, while also examining the feasibility of increasing the pension contribution from 10% to 14%. With close to 85 lakh subscribers and over Rs 6.8 lakh crore in assets under management, the NPS has an annualized return of over 9.2% for central government employees and over 9.1% for state government employees. 

The old pension scheme, which some employees and states are calling for a return to, is a defined benefit scheme. The states that are under opposition governments like Rajasthan, Punjab, Jharkhand, Himachal Pradesh, and Chattisgarh have decided to opt from the expressed their will to opt for the previous scheme.

Under the old scheme, retired government employees are entitled to receive a pension equivalent to 50% of their last pay drawn. This scheme was replaced by the NPS in 2004 as it was seen as unsustainable due to the rising pension liability.

While some states have opted out of the NPS, they are unable to get a refund of the money deposited with the pension fund managers as the law does not provide for it. In the absence of a refund, the states will have to either provide the fund for the last 16-17 years or stick to the NPS.

The Finance Minister has emphasized that the review of the NPS is part of the government's commitment to providing social security to all citizens. The review will aim to make the NPS more effective and accessible to employees in the organized sector, while also ensuring fiscal prudence. The committee will consider the experiences of other countries with similar pension systems and the Views of stakeholders before making its recommendations.

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