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National Pension Scheme


Many states are attempting to reinstate the Old Pension Scheme while discontinuing the National Pension System (NPS).


GS II- Government Policies and Interventions

Dimensions of the Article:
  1. What is the old pension scheme or the Defined Pension Benefit Schemes?
  2. What is the National Pension System (NPS)?

What is the old pension scheme or the Defined Pension Benefit Schemes?

  • The scheme assures life-long income, post-retirement.
  • Usually the assured amount is equivalent to 50% of the last drawn salary.
  • The Government bears the expenditure incurred on the pension.
  • The scheme was discontinued in 2004.

What is the National Pension System (NPS)?

  • The BJP-led Union government under Prime Minister Atal Bihari Vajpayee took a decision in 2003 to discontinue the old pension scheme and introduced the NPS.
  • The scheme is applicable to all new recruits joining the Central Government service (except armed forces) from April 1, 2004.
  • On introduction of NPS, the Central Civil Services (Pension) Rules, 1972 was amended.
  • It is a scheme, where employees contribute to their pension corpus from their salaries, with matching contribution from the government.
  • The funds are invested in earmarked investment schemes through Pension Fund Managers.
  • At retirement, they can withdraw 60% of the corpus, which is tax-free and the remaining 40% is invested in annuities, which is taxed.
  • It can have two components — Tier I and II.
  • Tier-II is a voluntary savings account that offers flexibility in terms of withdrawal, and one can withdraw at any point of time, unlike Tier I account. Private individuals can opt for the scheme.
  • 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.
What were the changes introduced in 2019?
  • In 2019, the Finance Ministry said that Central government employees have the option of selecting the Pension Funds (PFs) and Investment Pattern in their Tier-I account.
  • The default pension fund managers are the LIC Pension Fund Limited, SBI Pension Funds Pvt. Limited and UTI Retirement Solutions Limited in a predefined proportion.
Regulatory authority
  • The Pension Fund Regulatory and Development Authority (PFRDA) is the regulator for NPS.
  • PFRDA was set up through the PFRDA Act in 2013 to promote old age income security by developing pension funds to protect the interest of subscribers to schemes of pension funds.
What is the subscriber base?
  • As on February 28, there were 22.74 lakh Central government employees and 55.44 lakh State government employees enrolled under the NPS.

-Source: The Hindu

December 2023