According to the new pension scheme (NPS) announced on December 22, 2003, for all new government employees excepting those in the Armed Forces. This brand new system replaces the defined benefit system of pension and this includes GPF. Contributory pension scheme is for entrants who joined after 1st January 2004.
Finer Points of National Pension Scheme (NPS)
Under the new pension scheme, those who retire can withdraw 60% of the lump sum together and the rest 40% remaining balance they will now use towards the purchase of life insurance annuity scheme. Retirees can choose any insurance company that suits their requirement.
From this life insurance investment, they can now draw their monthly pension on a regular basis for the rest of their lives. However, if a government employee chooses to leave NPS prior to reaching the retirement age of sixty, in such cases mandatory annuity becomes eighty percent of total pension wealth. Under NPS, the monthly annuity replaces the traditional pension in the post retirement scenario and the family pension in cases where death of government employee occurs after retiring from service.
Death Cum Retirement Gratuity (DCRG)
Government servants on retirement are eligible for death cum retirement gratuity. In order to get this one time lump sum benefit it is essential that the employee goes through a minimum five years of qualifying service. The gratuity amount is one fourth of the basic employee salary and the dearness allowance that you draw prior to retirement for each half-yearly period related to your qualifying service. Maximum payable retirement gratuity is sixteen times the basic pay subject to the maximum ceiling of rupees ten lakhs.
Old Pension Scheme and New Pension Scheme
Those appointed prior to January 2004 get their post retirement amounts through a pension plan, which defines the benefit type. There is a monthly payment, which is equal to fifty percent of last drawn salary. Minimum payment to retired employees as pension through this old scheme is rupees 3,500. Those above the age of eighty get an additional pension in the range of twenty and a 100% of basic pensions.
Besides there is also dearness relief, based on All India Price Index for Consumers. Presently this is sixty-five percent of individual pensions. Again, there is a medical allowance fixed, which deals with expenditure related to health care. Much of this however does not remain under the NPS. These are two completely different pension systems.
The basic difference between the old and the new scheme is that while the earlier system was defined the new one is totally based on investment returns along with accumulations until retirement age, annuity type and its levels. In order to protect the interests of NPS subscribers Government has implanted various measures including a flexible pattern of investment, placement of a regulator, and creation of low cost modern NPS architecture.
Benefits of National Pension Scheme (NPS)
- More people are going to benefit than before: Under NPS the government is all set to include an increased number of people within the net of benefits. Up to now, only eleven percent of Indian population came under this post retirement scheme. With an increase in living expenses in the present time, insecurity is rampant among masses. NPS is all about infusing confidence and providing a sense of financial security. The government is quite enthusiastic about the far-reaching benefits of the new scheme bringing in those employed within the private sector and even the self-employed people.
- Availability of flexible schemes: It is up to the employees to decide which scheme they want to go for ensuring the growth of money. You need to give a monthly contribution that includes ten percent salary and dearness allowance. In the coming times, the government is all set to give an equal contribution, which helps to maximize the profit. Under different available schemes, there is allocation of different percentages. However, the ultimate decision rests with the employee.
- Withdrawal account: Another additional benefit of the NPS is that those who want can set up their very own withdrawal account, which is free of government interventions completely. However, in such cases, there are no equal contributions scene and the individual can withdraw their money as and when required without being answerable to the government in any way.
- Voluntary withdrawal: Those who complete their total service tenure of sixty years can consider their withdrawal from this new pension scheme any time they want. However, this is possible only after the purchase of forty percent worth of an annuity from their pension wealth during withdrawal.
There is a lot of dissension from various quarters regarding the safety, and benefits associated with this new pension scheme. However, in keeping with the positive features, which it shows the advantages, seem to outweigh the risks involved. After all the greater good of the people of this country is at stake and as for the rest, one simply needs to wait and see.
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