NDA Government Proposes 50% Assured Pension for Central Government Staff Under NPS

In a significant move, the Bharatiya Janata Party (BJP)-led National Democratic Alliance (NDA) government is set to offer enhanced pension benefits for central government employees under the National Pension System (NPS). According to a report by the Financial Express, the proposal aims to guarantee up to 50% of the last basic pay as a pension, marking a notable shift from the current market-based returns system.

Committee Led by Finance Secretary T V Somanathan

In March 2023, the Modi government established a committee led by Finance Secretary T V Somanathan to explore ways to improve pension benefits under NPS without reverting to the fiscally unsustainable Old Pension System (OPS). This committee was formed as several states began abandoning the NPS in favor of OPS.

The committee, which had no set deadline, included Radha Chauhan, special secretary in the Finance Ministry’s Expenditure Department; Annie Matthew; and Deepak Mohanty, chairman of the Pension Fund Regulatory and Development Authority. According to the Financial Express, the committee’s report, submitted in May, aligns closely with the Andhra Pradesh NPS model introduced in 2023.

The Andhra Pradesh NPS Model

The Andhra Pradesh Guaranteed Pension System (APGPS) Act, 2023, ensures a monthly pension of 50% of the last drawn basic pay if the annuity falls short. Additionally, the spouse of a deceased subscriber is guaranteed a monthly pension at 60% of the guaranteed amount. The Act also includes cost of living adjustments based on inflation.

The APGPS Act stipulates that part and final withdrawals will proportionately reduce the guaranteed pension, maintaining the system’s sustainability while providing enhanced benefits to retired employees.

Details of the NPS Proposal

The proposed scheme under NPS would guarantee a pension of 40-50% of the last pay, with adjustments based on years of service and any withdrawals from the pension corpus. Any shortfall in the pension corpus needed to meet the guaranteed amount would be covered by the central government’s budget.

If implemented, this proposal could benefit around 8.7 million central and state government employees who have been enrolled in the NPS since 2004. Although the exact cost of the guaranteed pension has not been determined, the Financial Express report suggests that investing the entire accumulated corpus in annuities or similar products could generate sufficient returns to provide a pension amounting to 50% of the last drawn salary.

Comparing OPS and NPS

Under the OPS, pre-2004 government employees are entitled to 50% of their last salary as a pension, provided they have at least 20 years of uninterrupted service. Employees with 10-20 years of service receive a pro-rata pension, adjusted for inflation twice a year.

In contrast, the current NPS requires a minimum of 40% of accumulated contributions to be invested in annuities to generate a monthly pension, which is not guaranteed and is subject to annuity returns. The remaining 60% can be withdrawn tax-free. The proposed guaranteed pension option under NPS would modify these existing norms, providing greater security and predictability for retirees.