The government of India has introduced a new scheme of pension for its new employees. The NPS – National Pension Scheme or New Pension Scheme is mandatory for the central government employees who have joined on or later 2004. On joining the service, the employees need to open a personal account for retirement under this scheme. One part the monthly salary of the new employees will be transferred to this personal retirement account till the employee retires. At the end of his service, he can make the use of this money collected over these years for the rest of his life. The employees who are eligible for this scheme has to be –
(1) In central government ministry department (civil services); or
(2) In non-civil departments like telecommunication of government, railways, postal services, defense; or
(3) Has to be an employee of an entity which is an autonomous body or grant-in-aid Institution, another undertaking of government or union territory whose employees are eligible for central government pension scheme.
Old Government Pension Scheme
- Amount: The sum total of Gratuity, EL Encashment, and commutation under the old pension fund was INR 38, 32,550. This is the total amount which the central government employees used to get once they retire at the age of 60.
- Pension: The monthly pension for the employees covered by the old pension scheme is INR 1, 00,934 and after his or her death, the spouse would get INR 10,317 on monthly basis. The DA is not included in this amount, though. After the death of the spouse, other family members are not eligible for any benefit.
- Gratuity & Other benefits: The gratuity amount is already included in the lump sum amount which the employee would get at the time of his retirement. There are not such other benefits in the old central government pension scheme.
New Pension scheme
The new central government employees are allotted with a unique PPAN – Personal Pension Account Number at the commencement of the service. There are mainly two types of a personal account for which this PPAN number is provided – i. Tier – I pension Account which is mandatory and ii. Tier – II saving account which is a voluntary account. These accounts and the PPAN are valid for the whole of the service years whether you change job or you are transferred to another place.
In Tier – I account, the contribution of the employee would be 10% of the monthly salary that is the summation of basic pay, DA, and DP. The government will contribute the same amount as you are contributing that is 10% of (Basic+ DA+ DP). The contribution will start from the second month of your joining as in the first month you will be allotted with the PPAN.
The amount which is being contributed and saved every month will be investment according to your choice either on Government Bonds, Corporate bonds or equity. You are free to diversify your savings across the schemes of investment and amongst bonds and equity according to your knowledge and desire.
- Amount- Part Payment: The amount which will be due to the employee on his retirement is INR 2, 87, 26,201 and the employee will receive it in two parts. In the beginning, 60% of the amount which is INR 1, 14, 90,481 will be provided to the employee and the remaining 40% will be invested in annuities. At the age of 70, the retired employee would get the remaining 40% of his savings in the pension fund. This amount is referred as the gift by the employee to his future generation and the amount no doubt is a lump sum one.
- Monthly Pension: The monthly pension that the employee would receive is INR 83,306. The 40% of the total fund which is invested in the annuity will earn monthly returns which also the employee will receive and after his or her demise, the spouse will get the benefit.
- Gratuity & other benefits: There is no gratuity in this new pension scheme. Other benefits include pension fund manager who will look after your investment and the government investment in the pension fund manages the whole process.
Why is New Pension Scheme beneficial over the old one?
The main difference in the amount of pension and the lump sum amount which is received at the end of the service that is in retirement. The new employees will receive INR 2, 48, 93,651 over the old employees which are a huge sum and a great support for the rest of the life and also for the dependants in the family. Moreover, the annuity scheme is completely new in the pension plans which wasn’t there in the old central government pension scheme. But the old central government pension scheme had gratuity which is not there in this new pension scheme, but according to the analysts, the amount of gratuity won’t make any different to the benefit of the new employees as the lump sum amount and investment benefits are huge in the new pension scheme. Moreover, the government’s contribution in the new scheme is exactly same as of the employee that is 10% which was earlier way lower by 8.7% per annum.
The new pension scheme is way more beneficial than the old central government pension scheme if you analyze it broadly. Though few people are ignoring the new scheme because of the absent of the gratuity but it is actually not making any difference.