A study by the Reserve Bank of India (RBI) has raised caution against a return to the Old Pension Scheme (OPS), estimating that its implementation will result in a 4.5 times more financial burden on the government compared to the existing National Pension System (NPS).
About National Pension Scheme (NPS)
- In 2004, the National Pension Scheme (NPS) was introduced for government employees. However, it was extended in 2009 and now covers all citizens, including the self-employed and unorganised workers except those from the armed forces.
- Under the NPS, citizens contribute an amount every month until they are 60 and receive a pension after retirement. Government employees can contribute 10 per cent of their basic salary plus Dearness Allowance (DA), and the government contributes 14 per cent of the basic salary plus DA every month.
- Other citizens can donate a minimum of Rs.500 monthly towards NPS.
- The PFRDA regulates NPS with transparent investment norms and regular performance reviews and monitoring of fund managers by NPS Trust.
- When a subscriber reaches the age of Superannuation/attaining 60 years of age, he or she will have to use at least 40% of accumulated pension corpus to purchase an annuity that would provide a regularmonthly pension.
- The remaining 60% funds can be withdrawn as lump sum.
- Subscribers can withdraw the entire corpus if it is less than or equal to Rs 5 lakh without purchasing an annuity plan under the new NPS guidelines.
- These withdrawals are also tax-free. Although withdrawals are tax-free, an annuity is taxable based on the income bracket.
