The National Pension System is a disaster for retiring employees, says an apex body of various government unions; pension under existing scheme just 15% of that under earlier one.
GS II- Government Policies and Interventions
Dimensions of the Article:
- About National Pension System
- NPS Benefits
- About PFRDA
About National Pension System
- National Pension System is a defined contributory pension introduced by Government of India.
- Any employee from public, private and even the unorganised sectors can opt for this. Personnel from the armed forces are exempted.
- The scheme is open to all across industries and locations.
The other eligibility criteria for opening an NPS account:
- Must be an Indian citizen.
- Must be between the ages of 18 and 65.
- Must be KYC compliant.
- Must not have a pre-existing NPS account.
- NPS offers returns higher than traditional instruments like the PPF (Public Provident Fund).
- It offers many investment options to subscribers who also have a say in where their funds are invested.
- The NPS reduces the retirement liabilities of the government.
- If the subscriber has been investing for at least three years, he/she can withdraw up to 25% for certain purposes before retirement (age 60). This withdrawal can be done up to 3 times with a gap of at least 5 years between each withdrawal. These restrictions are only for tier I and not tier II accounts.
- The entire amount cannot be withdrawn by the account-holder on retirement [Changes to be introduced]. As of April 2021, 60% can be withdrawn which has now been made tax-free. The rest 40% has to be kept aside so that the subscriber can receive a regular pension from an insurance firm.
The story so far about NPS
- Started as the New Pension Scheme for government employees in 2004 under a new regulator called the Pension Fund Regulatory and Development Authority (PFRDA), the National Pension System (NPS) has been open for individuals from all walks of life to participate and build a retirement nest-egg.
- Given the dominance of informal employment in India, the Employees’ Provident Fund Organisation, which is contingent on a formal employer-employee relationship, only covers a fraction of the workforce.
- The NPS has been gradually growing in size and now manages ₹5.78 lakh crore of savings and 4.24 crore accounts in multiple savings schemes.
- Of these, over 3.02 crore accounts are part of the Atal Pension Yojana (APY), a government-backed scheme for workers in the unorganised sector that assures a fixed pension payout after retirement.
- The rest constitute voluntary savings from private sector employees and self-employed individuals, for whom some significant changes are on the anvil.
- Pension Fund Regulatory and Development Authority (PFRDA) is the Statutory Body established by the PFRDA Act, 2014.
- PFRDA was established to regulate, promote and ensure orderly growth of the National Pension System (NPS) and pension schemes to which this Act applies.
-Source: The Hindu