Apprehensions among government employees regarding their NPS (National Payment System) pensions, particularly the absence of a guaranteed 50 per cent of their last salary, have their roots in the experiences of initial scheme participants, according to The Times of India report. The situation is accentuated by those who have already left the NPS, as their median service duration is around nine years, with a maximum of just over 18 years. This situation is exacerbated in certain cases, such as those in various states, where contractual workers transitioned to full-time government positions relatively late in their careers, leading to incomplete NPS accumulations at the time of exit, as per sources from within the government.
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The Times of India report added that a significant portion of government job entrants embark on their careers before the age of 30 and contribute for approximately three decades, allocating 10 per cent of their basic salary as their own contribution, supplemented by a 14 per cent employer contribution. However, challenges emerge for those who enter the system later, as some might not experience the full benefits due to court rulings. Worth noting is that some of these employees would not even have qualified for pension benefits under the previous pension scheme, as highlighted by an official.
In the ideal scenario, for a substantial retirement benefit, individuals should remain invested in the scheme for a period of 30 years or more, according to government officials. A committee led by the finance secretary, T V Somanathan, is presently devising a formula aimed at safeguarding the interests of employees as well as the central and state governments.
An analysis on the NPS Trust’s website underscores the substantial impact that the chosen tenure and annuity amount can have, even with a fixed contribution over the entire service period. Despite calls for a return to the Old Pension Scheme (OPS), the central government has thus far declined, diverging from some states, several of which are governed by opposition parties and have chosen the populist route.
Under the previous OPS, no employee contributions were required, with the government solely responsible for providing 50 per cent of the last drawn salary as pension, adjusted for inflation twice a year and aligned with pay commission awards every decade. The absence of an annual budget allocation for expected retirement benefits results in what experts term an “unfunded pension liability,” limiting resources available for overall welfare and developmental expenditure.
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The clamor primarily arises from those who have already exited the NPS, often without completing two decades of service. A substantial part of the benefits under the scheme stem from the compounded growth over an extended period, according to officials. The government mandated NPS for all new government employees from January 2004, with most states following suit in subsequent years.
Across the NPS’s three fund managers, returns range between 9.37 per cent and 9.6 per cent. It has been noted that many departing government employees utilize only 40 per cent of the accumulated corpus for annuity purchases, resulting in reduced monthly income.
