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National Pension System streamlined: Government's contribution to NPS hiked to 14 percent

The proposed changes to NPS would be made applicable immediately once time critical decisions are taken in consultation with the other concerned Ministries and Departments.

Dec 11, 2018 15:28 IST
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The Union Cabinet on December 6, 2018 approved the proposal to streamline the National Pension System (NPS).

The NPS was implemented in May 2009 to provide a pension option to 360 million informal sector workers and provide them with old-age income security. NPS is being implemented and regulated by the Pension Fund Regulatory and Development Authority (PFRDA).

Changes approved in the National Pension System

Mandatory contribution by the Central Government enhanced by 4 percent from the existing 10 percent to 14 percent for employees covered under NPS Tier-I

Central government employees will be provided with freedom of choice for selection of Pension Funds and pattern of investment.

Payment of compensation for non-deposit or delayed deposit of NPS contributions during 2004-2012

Contribution by Government employees under Tier-II of NPS will now be covered under Section 80 C for deduction up to Rs 1.50 lakh for the purpose of income tax at par with schemes such as General  (PF), Contributory PF, Employees PF and Public PF, with lock-in period of 3 years.

The entire withdrawal will now be exempt from income tax as the tax exemption limit for lump sum withdrawal on exit has been enhanced to 60 percent.

Note: Under the NPS, the subscriber is eligible to withdraw 60 percent of the corpus and remaining 40 percent of the accumulated fund goes towards annuity. Out of 60 percent of the accumulated corpus withdrawn by the NPS subscriber at the time of retirement, 40 percent is tax exempt and balance 20 percent is taxable.

When will these changes be implemented?

The proposed changes to NPS would be made applicable immediately once time critical decisions are taken in consultation with the other concerned Ministries and Departments.

Expenditure involved

The impact of these changes on the exchequer is estimated to be to the tune of around Rs 2840 crores for the financial year 2019-20 and it will be a recurring expenditure.

Number of beneficiaries

Approximately 18 lakh central government employees covered under NPS would be benefitted from the streamlining of the National Pension System.

Impact

Increase in eventual accumulated corpus of all central government employees covered under NPS

Greater pension payouts after retirement without any additional burden

Freedom of choice for selection of Pension Funds and investment pattern

Benefit to approximately 18 lakh central government employees covered under NPS

Old-age security will be augmented in a time of rising life expectancy

Who recommended these changes?

  • The new entrants to the central government service on or after January 1, 2004 are covered under the National Pension System (NPS).
  • The Seventh Pay Commission (7th CPC), during its deliberations, examined certain concerns regarding NPS and made recommendations in the year 2015 such as setting up of a Committee of Secretaries in this regard.
  • Accordingly, a Committee of Secretaries was constituted by the Government to suggest measures for streamlining the implementation of NPS in the year 2016.
  • The Committee submitted its report in the year 2018. Accordingly, based on the recommendations of the Committee, these changes were placed before the Cabinet for its approval.

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