New Delhi: The BJP-led NDA government is reportedly considering a significant pension reform for central government employees enrolled in the National Pension System (NPS). The government is expected to increase Central government staff’s last pay drawn as pension to 50 per cent under NPS in upcoming Budget 2024. In response to Union Finance Minister Nirmala Sitharaman’s announcement, a committee led by Finance Secretary T V Somanathan was formed. This committee was tasked with exploring solutions despite the government’s stance against reinstating the Old Pension Scheme (OPS).
Review and Proposal
The committee extensively reviewed global practices and studied adjustments made by the Andhra Pradesh government. It conducted detailed calculations to evaluate the feasibility of guaranteeing pension returns. While initial proposals suggested a guarantee of 40-45%, there is growing support within the government for a higher guarantee of 50%. This would ensure that the government steps in to cover any financial shortfalls.
Annual Assessment Recommendation
To address concerns about the NPS’s comparative disadvantage against traditional pension systems, the committee recommended conducting an annual assessment of the scheme. This aligns with efforts to establish a dedicated retirement fund in Budget 2024, similar to private sector practices.
Comparison of Pension Schemes
The Old Pension Scheme (OPS) guarantees pension payments equivalent to half of the last drawn salary for life, adjusted based on pay commission recommendations. In contrast, the NPS operates as a defined contribution scheme where employees contribute 10% of their basic salary, matched by a 14% contribution from the government.
Recent Developments and Government Response
On January 11, 2024, the Joint Forum for Restoration of Old Pension Scheme (NJCA) forwarded a memorandum advocating for the reinstatement of the OPS for employees hired after January 1, 2004. The Finance Ministry’s Department of Expenditure acknowledged these concerns and noted discussions with the National Council (JCM).
Current Government Stance
In December 2023, the Centre informed the Lok Sabha that it currently has no plans to reintroduce the OPS for employees hired after January 1, 2004. Despite ongoing appeals, the government maintains its position against actively pursuing the reinstatement of the old pension scheme.
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Budget 2024: While initial proposals suggested a guarantee of 40-45%, there is growing support within the government for a higher guarantee of 50%. Economy Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
