Govt likely to unveil new pension model for staff

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The government is considering the announcement of a new pension model for its staff before state assembly elections commence later this year. This could result in a reasonable pension amount based on a workable formula, according to a report by The Financial Express (FE).

A source quoted in the report indicated that under the tentative model, pensions for government staff would be adjusted for inflation only every five or ten years due to financial constraints. This differs from the Old Pension Scheme (OPS), where benefits are fully adjusted for inflation on an annual basis.

Analysts suggest that a 35-40 per cent guarantee could be achievable by making minor adjustments to the existing National Pension System (NPS) structure. This is a scheme based on the concept of defined contribution.

An option to guarantee 50 per cent of the last salary drawn has not been ruled out, although this could incur additional costs for both the Centre and employees.

The source further noted that the Centre could make the pension guarantee public for its staff by November. Assembly elections in Rajasthan, Madhya Pradesh, Chhattisgarh, Mizoram, and Telangana are scheduled for November and December.

However, the Centre is likely to refrain from introducing any major initiatives ahead of the assembly and Lok Sabha elections, instead choosing to continue its focus on welfare schemes targeted at the lower strata of society.

An official informed FE that there has been no indication of any discussion regarding a new scheme. Instead, the Centre aims to cover existing schemes fully and will make targeted interventions as required.

Employees under the NPS constitute a small portion of the electorate, with 8.7 million being employed by both the Centre and the states.

What is the Old Pension Scheme (OPS)?

The OPS assures a monthly pension equivalent to 50 per cent of the employee’s last drawn basic salary. It also provides a dearness allowance upon retirement, or an average of the wages earned over the preceding ten months, whichever is more favourable.

What is the National Pension System (NPS)?

In the NPS, a state government employee contributes 10 per cent of his or her basic salary plus dearness allowance. The state makes a matching contribution. These funds are then invested in one of the various pension funds approved by the Pension Fund Regulatory and Development Authority. Since returns are linked to market performance, they are not guaranteed. Sixty per cent of the corpus is tax-free upon maturity, while the remaining 40 per cent is taxable when invested in annuities.

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Pooja Gupta

CA Pooja Gupta (CA, ISA, having 15 years of experience. Educator and Digital Creator

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CA Pooja Gupta (CA, ISA, having 15 years of experience. Educator and Digital Creator

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