NPS offers high returns for those who stay invested for 25-30 years. (representational)
The central government is mulling guaranteeing 50% of the last drawn salary as pension to its employees under the National Pension System. The move aims to address the concern over the pay-out disparities under NPS compared to the Old Pension Scheme (OPS), according to a report in The Times of India. A committee, led by Finance Secretary T V Somanathan, was appointed to evaluate the implications of the decision after the announcement by Finance Minister Nirmala Sitharaman last year.
While the NPS offers high returns for those who stay invested for 25-30 years, the pension payout has been in focus after several political parties promised a return to the OPS during elections.
The OPS guarantees a pension payout of 50% of the last drawn salary as a lifelong pension, updated with the Pay Commission recommendation.
The NPS, on the other hand, offers no such guarantee and is a market-linked scheme. It is a defined contribution scheme where employees contribute 10% of their basic salary while the government pays 14%.
A section of central government employees has been demanding a guaranteed 50% of the last pay drawn for those who serve 25-30 years.
Though the Centre has ruled out any possibility of shifting to OPS, it is now considering offering some comfort in the pension payout.
The Somanathan committee studied global practices and extensive calculations to understand the economic impact of offering assured returns. It suggested that although the Centre can offer a 40-45% guarantee, but 50% payout assurance was not mentioned.
This means the government will have to step in to fill the gap.
The Centre is also reportedly planning to create a dedicated fund, similar to corporate retirement benefits, to ensure the financial sustainability of the decision. Several rounds of discussions have been conducted to evaluate different aspects of the decision and strike a balance between fiscal prudence and employee welfare.