CrackitToday App

National Pension System

National Pension System:

Many states are demanding to restore the Old Pension Scheme and roll back the National Pension System (NPS).

  • Rajasthan has said it will bring back the old pension scheme in the state from the next financial year, and Chhattisgarh is expected to follow suit.
  • Governments of Kerala, Andhra Pradesh, and Assam have also formed committees regarding the old pension scheme.

National Pension System:

  • The Central Government introduced the National Pension System (NPS) with effect from January 2004 (except for armed forces).
  • In 2018-19, to streamline the NPS and make it more attractive, the Union Cabinet approved changes in the scheme to benefit central government employees covered under NPS.
  • The NPS was launched as a way for the government to get rid of pension liabilities.
  • According to a news report that cited research from the early 2000s, India’s pension debt was reaching uncontrollable levels.
  • On introduction of NPS, the Central Civil Services (Pension) Rules, 1972 was amended.
  • The NPS allows subscribers (government employees) to decide where they want to invest their money by contributing regularly in a pension account throughout their career.
  • After retirement they can withdraw a part of the pension amount in a lump sum and use the rest to buy an annuity for a regular income.
  • NPS is being implemented and regulated by PFRDA (Pension Fund Regulatory and Development Authority) in the country.
  • National Pension System Trust (NPST) established by PFRDA is the registered owner of all assets under NPS.
  • Features:
    • The All Citizens Model of the NPS allows all citizens of India (including NRIs) aged between 18 – 70 years to join NPS.
    • It is a participatory scheme, where employees contribute to their pension corpus from their salaries, with matching contributions from the government. The funds are then invested in earmarked investment schemes through Pension
  • In 2019, the Finance Ministry said that Central government employees have the option of selecting the Pension Funds (PFs) and Investment Pattern.
  • At retirement, they can withdraw 60% of the corpus, which is tax-free and the remaining 40% is invested in annuities, which is taxed.
  • Even private individuals can opt for the scheme.

Old Pension Scheme:

  • 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.