Finance minister Nirmala Sitharaman on Friday announced that the government would set up a committee to review the National Pension Scheme (NPS) under the chairmanship of the finance secretary. The committee will come up with a solution to the issue of pensions.
"Representations have been received that the National Pension System for government employees needs to be improved. I propose to set up a committee under the finance secretary to look into the issue of pensions and evolve an approach which addresses the needs of the employees while maintaining fiscal prudence," she said while addressing the Lok Sabha.
“The approach will be designed for adoption by both central and state governments,” she added. The current national pension scheme, or new pension scheme, was introduced in 2003 and implemented on January 1, 2004. Unlike the old pension scheme, the NPS was based on a contributory system, where the government provided the pension amount.
It was introduced to provide old age income security in a fiscally sustainable manner and to convert small savings into investments. In NPS, 10 per cent of basic salary and dearness allowance (DA) is compulsorily deducted from an employee’s salary, and the government adds the same amount to the pension fund.
At the time of retirement, an employee will be given back 60 per cent of this fund, and the remaining 40 per cent would have to be compulsorily invested as an annuity for pension. Employees from several states have been demanding a change in the NPS. Some states, including Rajasthan, Chattisgarh, Punjab and Jharkhand, have switched back to the OPS. Protests for the same are currently taking place in Haryana.
What is Old Pension Scheme?
Old Pension Scheme (OPS) is a retirement scheme approved by the central government which provides a monthly pension to the beneficiaries till the end of their life service. Under this, the amount of monthly pension is equal to half of the last salary drawn by an individual.
What is New Pension Scheme?
New Pension Scheme (NPS) is the latest retirement scheme in which the beneficiaries will be able to withdraw 60% of the amount invested after retirement. It was made mandatory for all new recruits to the Government service (except armed forces) with effect from January 1, 2004, and has also been rolled out for all citizens with effect from May 1,2009, on voluntary basis.
Why employees are protesting against NPS?
Under Old Pension Scheme (OPS), the pension amount is provided by the government, which increases its liability, whereas the NPS has a contributory mechanism from the employee as well as the government.