By the end of this year, the central government could present a significant gift to pensioners. According to a report from Livemint, there’s contemplation to make revisions in the National Pension Scheme (NPS). This might ensure that retirees receive a minimum of 40-45% of their final salary. Currently, after recommendations from a high-level panel studying this matter, potential changes to the scheme are anticipated.
Launched in 2004, the new market-linked pension scheme doesn’t offer guaranteed returns like its predecessor. Under the old pension system, retirees would receive benefits equivalent to 50% of their last drawn salary. As per the Livemint report, the revised pension plan might include various changes to enhance returns. Changes in the contribution portions from both employees and employers are also probable. Here, the term “employer” refers to both central and state governments.
The pension scheme has recently become a political issue in the country. In the interim, several opposition-ruled states have reverted to the old pension system. These include Rajasthan, Chhattisgarh, Jharkhand, Himachal Pradesh, and Punjab. Some economists have warned that this move could push these state governments towards bankruptcy.
The new scheme faces criticism for its approach to employee contributions. This is because it isn’t a component of the old pension scheme, where the government made the entire contribution. In the new pension scheme, the employee contributes 10% of their salary, while the government chips in with 14%. Under NPS, pensioners are allowed to withdraw 60% of their fund tax-free at the time of retirement. The remaining 40% can be used to purchase an annuity, which is taxable.
