PERSONAL FINANCE
Committee formed by Finance Minister to improve attractiveness of NPS for government.
During the presentation of the Finance Bill 2023 in the Lok Sabha on Friday, Union Finance Minister Nirmala Sitharaman announced that a committee would be set up to examine issues related to pensions for government employees. The group will devise a strategy that meets employee requirements while also maintaining fiscal prudence.
Sitharaman stated that the current national pension system (NPS) for government employees needed improvement, citing representations received on the issue. The proposed approach would be developed for adoption by both central and state governments.
The decision comes as several non-BJP states have decided to switch back to the Old Pension Scheme (OPS), which is linked to dearness allowance, and employee organizations in other states have demanded the same. In addition to notifying the centre of their decision to switch back to the OPS, the states of Rajasthan, Chhattisgarh, Jharkhand, Punjab, and Himachal Pradesh also asked for a return of the corpus accumulated under the NPS.
The OPS provided retired government employees with a monthly pension equivalent to 50 per cent of their last drawn salary, which increased with DA hikes. However, it was not fiscally sustainable as it was not contributory, and the burden on the exchequer kept growing. The central government previously informed Parliament that it had no plans to restore the OPS for central government employees recruited after January 1, 2004.
The NPS was implemented in 2004 to offer old age income security sustainably. It is based on a contributory system, with 10 per cent of an employee's basic salary and dearness allowance being deducted from their salary, and the government adding the same amount to the pension fund. Upon retirement, an employee receives 60 per cent of the fund, and the remaining 40 per cent is invested as an annuity for a pension. The NPS has been made available to all Indian citizens on a voluntary basis since May 1, 2009.
Read more: Explained: What are the major amendments to the Finance Bill 2023 passed in Lok Sabha?
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