NPS Guaranteed Pension? Govt studying Somanathan panel report

Prime Minister Narendra Modi took the oath as PM for the third time on June 9, marking the official beginning of Modi 3.0. Alongside him, 71 ministers also took the oath. During the tenure of this new NDA government, several major decisions could be stamped. Meanwhile, there are reports suggesting that the new NDA government could provide guaranteed pensions to central government employees under the National Pension System (NPS). Let’s find out what preparations are being made for changes in the new pension system and what was said about it by the Ministry of Finance last year.

The National Pension System (NPS) is a government scheme. Currently, the NPS provides market-based returns. It is being said that preparations are underway to make changes to it for central government employees. The new NDA government under PM Modi’s leadership could provide guaranteed pensions to central government employees. According to a report in the Financial Express, there could be a guarantee to provide pension to central government employees under the NPS, up to 50% of their last basic pay.

It is noteworthy that last year, announcements were made from several opposition-led states to reintroduce the Old Pension Scheme (OPS). Amidst this, in March 2023, the Modi 2.0 government formed a committee under the chairmanship of Finance Secretary T.V. Somanathan to explore ways to enhance pension benefits under NPS for government employees.

According to a report published in the newspaper, the panel submitted its report to the government in May. The report mainly adopts the NPS model of Andhra Pradesh. According to this, the central government will provide its employees with a guaranteed pension of 40 to 50% of their last salary. This will depend on the years of service and the retirement corpus. The central government will cover any deficit in the pension corpus from its budget.

Similar news had come last year, which was dismissed by the Ministry of Finance. Referring to such news, the Ministry said in its post on social media, “Several newspapers have published reports that the government may propose to give specific percentage of pension to central government employees under the National Pension System. This news is completely false. The committee formed under the leadership of the Finance Secretary is still in the process of consultation with stakeholders and has not reached any conclusion yet.”

Towards the end of last year, the central government clarified its intention regarding the revival of the Old Pension Scheme. In a written reply in the Lok Sabha, the then Finance Minister Pankaj Chaudhary stated, “The Indian government has no proposal under consideration to reintroduce the Old Pension Scheme for central government employees recruited on or after January 1, 2004.”

Under the Old Pension Scheme, government employees recruited before 2004 are entitled to receive 50% of their last salary as pension, provided they have served for at least 20 years. Employees serving between 10 and 20 years receive a pro-rata pension.

On the other hand, under the current NPS, an employee has to contribute at least 40% of the contribution to purchase an annuity plan, which generates a pension. The pension amount in this is not guaranteed but depends on the annuity returns. The remaining 60% can be withdrawn tax-free.

So far, there has been no comment from the government regarding the changes in NPS and guaranteed pension. However, if Prime Minister Narendra Modi implements it in his third term, it will benefit around 87 lakh enrolled and employed people from the central and state governments since 2004.