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Centre Considers Guaranteeing 50% of Last Drawn Salary as Pension Under NPS

Proposal Aims to Address Disparities Between NPS and Old Pension Scheme

Lagatar News by Lagatar News
July 10, 2024
in Lagatar News, National & International
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Lagatar24 Desk

New Delhi: The central government is contemplating a new policy to guarantee 50% of the last drawn salary as a pension to its employees under the National Pension System (NPS). This move seeks to address concerns over payout disparities between the NPS and the Old Pension Scheme (OPS), according to a report by The Times of India.

The initiative follows the establishment of a committee led by Finance Secretary T V Somanathan to assess the implications of this decision, which was first announced by Finance Minister Nirmala Sitharaman last year.

While the NPS is known for providing high returns for employees who remain invested for 25-30 years, the disparity in pension payouts compared to the OPS has been a significant issue. The OPS guarantees a lifelong pension payout of 50% of the last drawn salary, adjusted according to Pay Commission recommendations. Conversely, the NPS is a market-linked, defined contribution scheme, with employees contributing 10% of their basic salary and the government contributing 14%.

A segment of central government employees has been advocating for a guaranteed 50% of the last pay drawn for those who serve 25-30 years. Although the Centre has ruled out a return to the OPS, it is now considering providing some level of assurance in the pension payout.

The Somanathan committee has studied global practices and conducted extensive calculations to understand the economic impact of offering assured returns. The committee suggested that while a 40-45% guarantee could be feasible, the 50% payout assurance was not explicitly mentioned. This implies that the government might need to step in to bridge the gap.

To ensure the financial sustainability of this decision, the Centre is also reportedly planning to establish a dedicated fund similar to corporate retirement benefits. Several rounds of discussions have been conducted to evaluate different aspects of the proposal, aiming to balance fiscal prudence with employee welfare.

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