The demand for restoring the old pension scheme

How will the National Pension Scheme benefit the employees ? What are the changes introduced in the scheme ?

The story so far: On February 23, Rajasthan Chief Minister Ashok Gehlot announced restoration of the old pension scheme for the government employees, who joined the service on or after January 1, 2004. The announcement meant that the National Pension System (NPS) would be discontinued in the State. Following this, another Congress-ruled State, Chhattisgarh announced restoration of the Defined Pension Benefit Scheme (DPBS/OPS).

In the recently concluded Uttar Pradesh assembly election, Samajwadi Party president Akhilesh Yadav had announced the restoration of OPS, drawing the support of several government teachers and employees in the process. The BJP had maintained that restoration of the old system would cause an unnecessary financial burden on the government. The demand has resonated in other parts of the country. In the last week, protests were organised in J&K, Punjab, Andhra Pradesh, Himachal Pradesh and Madhya Pradesh. Trade unions across the country organised a two-day strike on March 28 and 29 and demanded scrapping of the old pension scheme. The Finance Ministry had earlier ruled out proposals by a federation of Central and State governments employees saying that the “changes will be financially untenable.”

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.

The BJP-led Union government under Prime Minister Atal Bihari Vajpayee took a decision in 2003 to discontinue the old pension scheme and introduced the NPS. The scheme is applicable to all new recruits joining the Central Government service (except armed forces) from April 1, 2004. On introduction of NPS, the Central Civil Services (Pension) Rules, 1972 was amended.

It is a participatory scheme, where employees contribute to their pension corpus from their salaries, with matching contribution from the government. The funds are then invested in earmarked investment schemes through Pension Fund Managers. At retirement, they can withdraw 60% of the corpus, which is tax-free and the remaining 40% is invested in annuities, which is taxed. It can have two components — Tier I and II. Tier-II is a voluntary savings account that offers greater flexibility in terms of withdrawal, and one can withdraw at any point of time, unlike Tier I account. Even private individuals can opt for the scheme.

In 2019, the Finance Ministry said that Central government employees have the option of selecting the Pension Funds (PFs) and Investment Pattern in their Tier-I account. The default pension fund managers are the LIC Pension Fund Limited, SBI Pension Funds Pvt. Limited and UTI Retirement Solutions Limited in a predefined proportion.

The Pension Fund Regulatory and Development Authority (PFRDA) is the regulator for NPS. PFRDA was set up through the PFRDA Act in 2013 to promote old age income security by developing pension funds to protect the interest of subscribers to schemes of pension funds.