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Finance Secretary-led panel to suggest steps for higher pension under NPS

The ministry of finance on Thursday set up a four-member panel headed by Finance Secretary TV Somanathan to suggest ways for higher pensionary benefits to the government employees covered under the contributory National Pension System amid growing demand for the old pension system (OPS) with assured benefits without contribution.

While ruling out reversing the pension reforms and going back to the fiscally-disastrous unfunded OPS, which entails 50% of the last pay drawn as pension from the budget to the pre-2004 staff, the Centre is conscious of the increasing resonance of demand for the OPS amid a spate of state/general elections in 2023-2024. The committee might suggest guaranteeing pension similar to OPS in a graded manner but without reverting to a fiscally disastrous non-contributory system, sources have told FE.

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Other members of the committee include the Secretary, Department of Personnel & Training Ministry of Personnel, Public Grievances & Pensions; Special Secretary (Pers), Department of Expenditure Ministry of Finance; Pension Fund Regulatory & Development Authority (PFRDA) chairman.

The terms of reference (ToR) of the panel include whether in the light of the existing framework and structure of the NPS, as applicable to government employees, any changes therein are warranted.

“If so, to suggest such measures as are appropriate to modify the same with a view to improving upon the pensionary benefits of Government employees covered under the NPS, keeping in view the fiscal implications and impact on overall budgetary space, so that fiscal prudence is maintained to protect the common citizens,” according to the finance ministry notification.

The Committee may also co-opt any officer of the Central Government as part of its deliberations, whenever such a need is felt by the Committee. It would devise its own procedure and mechanism, including consultation with states etc., to arrive at its recommendations. No time frame has been indicated in the ToR for submission of the report.

“Representations have been received that the NPS 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 employees, while maintaining fiscal prudence to protect common citizens,” finance minister Nirmala Sitharaman told the Lok Sabha on march 24. “The approach will be designed for adoption by both the central government and state governments.”

Sources indicate that one possible option could be to offer guaranteed pension to government staff at around 50% of the last pay drawn under the NPS, by tweaking the existing scheme without burdening the exchequer too much. However, it may be graded with a 50% pension only for those completing at least 33 years of service.

While the OPS is based on the concept of defined benefits, the principle that underlies the NPS is defined contribution.

Many Opposition-ruled states — Rajasthan, Chhattisgarh, Jharkhand and Punjab — have announced a return to the OPS. Around 1.7 million employees of the BJP-Shiv Sena Maharashtra government recently ended their indefinite strike over the OPS after chief minister Eknath Shinde assured of OPS benefits being included in the NPS.

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Currently, under the NPS, 60% of the accumulated corpus from contributions during a person’s working years is allowed to be withdrawn at the time of retirement. Such withdrawal is also tax-free. The balance 40% is invested in annuities, which according to an estimate, could provide a pension equivalent of about 35% of the last pay drawn. However, it is not a guaranteed pension as returns are linked to markets.

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