As the Finance Ministry prepares to present the 2024–25 fiscal year budget, the National Democratic Alliance (NDA) government is contemplating a significant reform for central government employees. According to a report by the Times of India, the government may offer 50% of the last drawn salary as a pension under the National Pension System (NPS).
Addressing employee concerns
This proposed move aims to address longstanding concerns among central government employees about their pension benefits. Despite the NPS offering attractive returns for those invested for 25-30 years, particularly for employees recruited after 2004, the assurance of a 50% pension is seen as a crucial step.
A Panel's Findings
A panel led by Finance Secretary TV Somanathan has evaluated the impact of providing an assured return. Formed following an announcement by Finance Minister Nirmala Sitharaman, the committee reviewed global practices and adjustments implemented by the Andhra Pradesh government. The report indicates growing government support for offering a 50% pension guarantee, with the government filling any shortfall.
Implications for the pension system
The Somanathan panel’s recommendations come amid ongoing concerns about the pension system for central government employees. Currently, the government pension system operates without a dedicated retirement fund, a gap the NDA government is expected to address in the upcoming budget.
About the National Pension System (NPS)
The NPS is a voluntary, long-term retirement savings scheme aimed at providing financial security post-retirement. Regulated by the Pension Fund Regulatory and Development Authority (PFRDA), it operates on a defined contribution basis. Subscribers regularly contribute to their retirement accounts, which are invested in equity, corporate bonds, government securities, and alternative assets by Pension Fund Managers appointed by the PFRDA.
The NPS also offers tax benefits under Section 80C of the Income Tax Act, along with an additional deduction under Section 80CCD(1B).
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