A panel has been formed by the Finance Ministry to assess the government employees’ pension programme. The committee, under the direction of Finance Secretary T V Somanathan, will provide recommendations for methods to enhance pension benefits for public employees.
The committee will also take into account how any budget modifications will affect the bottom line. Officials from the Department of Personnel and Training, the Department of Expenditure, and the Pension Fund Regulatory and Development Authority are also members of the committee. The group was established because some governments are returning to an antiquated, unsustainable pension system. The committee will not look into putting back the previous system for employees of the federal government. All current government employees, with the exception of those who joined the armed forces or the central government on or after January 1, 2004, use the National Pension System. The report of the committee has no defined due date.
For state employees, certain states have reinstated the Old Pension Scheme (OPS) rather than the New Pension Scheme or National Pension Scheme (NPS), including Rajasthan, Chhattisgarh, Jharkhand, Punjab, and Himachal Pradesh. Both of these programmes offer retired Central and State government personnel a monthly pension.The Old Pension Scheme (OPS): An Overview The Old Pension Scheme (OPS) is a retirement programme for government workers that, providing they have worked for at least ten years, guaranteed a monthly pension based on their most recent basic income and years of service.
Under OPS, the government pays retired employees their complete pension sum without deducting any money from their wages while they were in the service. Additionally, retired personnel benefit from the twice-yearly Dearness Allowance (DA) amendment, which raises their pensions. OPS, however, only applies to government workers.
The National Pension Scheme (NPS): An Overview The Old Pension Scheme (OPS) was cancelled by the government in 2004 in favour of the National Pension Scheme (NPS) for public servants. Later in 2009, the government broadened the NPS’s eligibility requirements to cover all citizens, including independent contractors and unorganised workers. It is a voluntary pension plan where people can make monthly contributions up until the age of 60 and then retire with a pension. The Pension Fund Regulatory and Development Authority (PFRDA) is in charge of managing the NPS.
Each month, the government contributes 14% of the base wage plus Dearness Allowance (DA) while government employees each contribute 10% of their basic income plus DA. Other citizens can contribute to the NPS for as little as Rs. 500 per month. The payments are combined into a pension fund, which makes investments in a varied portfolio of bonds, corporate shares, and debentures as well as government bills and bills of exchange. The NPS investments are managed by experienced fund managers including SBI, LIC, and UTI.
In order to receive pension annuities as a monthly pension after retirement, a person may withdraw up to 60% of their NPS balance and invest the remaining 40% with any of the ten licenced fund managers. Which employees have the opportunity to select the Old Pension Scheme (OPS)? The NPS, which was launched by the government in 2004 and superseded the OPS for all new hires, took the place of the former in that year. The Department of Pension and Pensioner’s Welfare (DoPPW) gave Central Government employees a one-time opportunity to choose to receive a pension under the OPS starting in February 2023, though. Employees hired for a position that was advertised or notified prior to the NPS notification date and those who started working for the company on or after January 1, 2004, and are currently covered by the NPS, are both eligible. Those who do not choose the OPS option will continue to receive NPS coverage after the filing date of August 31, 2023. What benefits do the National Pension Scheme (NPS) and the Old Pension Scheme (OPS) have over one another? The National Pension Scheme (NPS) is regarded as superior to the Old Pension Scheme (OPS) in a number of areas, including: Flexibility: In terms of investment options, fund managers, and the possibility to switch between investment options, the NPS gives individuals more flexibility. Depending on their risk tolerance, people can select from a variety of asset classes like equities, government bonds, and corporate bonds.
The NPS is a transferable program, so members can maintain their account even if they switch jobs or residences. This makes it more practical for people whose careers need frequent transfers. Market-linked: The NPS is a market-linked scheme, and the returns on investments are determined by how well pension fund managers perform their investments. Individuals are able to increase the returns on their investments thanks to this. cheaper management fees: In comparison to the OPS, the NPS offers cheaper management fees. As a result, more of the investment money goes towards creating the retirement corpus, and the investor keeps a larger percentage of the profits. Tax benefits: Under Section 80C of the Income Tax Act of 1961, investments made in NPS up to Rs. 1,50,000 year are tax deductible. Under Section 80CCD, an extra Rs. 50,000 is also exempted from taxes. You can thus plan your retirement corpus and take advantage of tax benefits provided by the NPS.
In comparison to the OPS, the NPS is generally regarded as a more open, adaptable, and market-linked system that gives people more control over their retirement funds. It’s crucial to keep in mind that the investment risk falls on the person and that market changes can affect the return on the investment.
“NPS” in India typically refers to the “National Pension System.” The National Pension System is a government-sponsored pension scheme in India that provides retirement savings options for individuals. It is a voluntary, defined contribution retirement savings plan that allows individuals to contribute towards their retirement savings during their working years, which is then invested in pension funds to generate returns. NPS is regulated by the Pension Fund Regulatory and Development Authority (PFRDA) and is open to employees from the public, private, and unorganized sectors, as well as to self-employed individuals. NPS offers different investment options and allows individuals to choose their fund managers and investment strategies based on their risk appetite and retirement goals. On retirement, individuals can withdraw a portion of the accumulated corpus as a lump sum and use the remaining amount to purchase an annuity to receive a regular pension during their retirement years. NPS is a popular retirement savings option in India and is widely used by individuals as part of their retirement planning.
The old pension system in India refers to the traditional pension scheme that was prevalent in the country before the implementation of the National Pension System (NPS). The old pension system was a defined benefit pension plan, also known as the “pay-as-you-go” system, where government employees and some employees of public sector undertakings (PSUs) were entitled to receive a pension after retirement.
Under the old pension system, the pension amount was calculated based on the employee’s last drawn salary and the number of years of service. The employees were required to make monthly contributions towards their pension during their working years, and the government or the employer would contribute an equal amount. The accumulated contributions would then be used to provide a regular pension to the employees after their retirement, which would continue for the rest of their lives.
The old pension system provided a guaranteed pension amount to the employees, and the burden of providing the pension rested with the government or the employer. However, it also posed financial challenges as the government had to allocate significant funds to meet the pension liabilities, which increased with an aging workforce and increasing life expectancy.
In 2004, the Government of India introduced the National Pension System (NPS) as a new pension system, which is a defined contribution pension plan where the employee contributes towards their pension during their working years, and the pension amount depends on the accumulated contributions and the returns on investment. The NPS is mandatory for central government employees joining service after January 1, 2004, and is optional for other employees. However, the old pension system continues to be applicable to employees who joined service before that date and opted to remain in the old system.
A practising Chartered Accountant (CA) in India, can play a significant role in helping individuals make informed decisions about selecting the National Pension System (NPS). Here are some ways in which CA expertise can be beneficial:
- Tax planning: CA have a deep understanding of the tax implications of different investment options, including NPS. It can help individuals understand the tax benefits available under NPS, such as deductions available under Section 80CCD(1), Section 80CCD(2), and Section 10(14)(i) of the Income Tax Act, 1961. CA or Tax Expert or Tax Consultant can help individuals optimize their tax planning by considering NPS as a part of their overall tax strategy.
- Investment analysis: Tax Expert or CA can provide individuals with an analysis of the investment options available under NPS, such as the different asset classes (Equity, Corporate Bonds, and Government Securities) and the various fund managers. You can help individuals understand the risks and returns associated with each option based on their risk appetite and investment goals. This can enable them to make informed investment choices within NPS.
- Retirement planning: CAs or Tax experts are well-versed in financial planning and retirement planning. It can help individuals assess their retirement needs, estimate their post-retirement expenses, and determine the adequacy of their existing retirement savings, including NPS. It can also assist them in choosing the appropriate NPS pension fund option and pension withdrawal strategy based on their retirement goals and risk tolerance.
- Compliance and documentation: NPS requires individuals to comply with certain rules and regulations, such as KYC (Know Your Customer) norms, documentation requirements, and periodic reporting. CA or Tax expert expertise can help individuals in understanding and fulfilling these compliance requirements effectively.
- Estate planning: NPS also provides options for individuals to nominate beneficiaries and plan for the transfer of pension wealth to their legal heirs. Chartered Accountant or Tax Consultant CA can assist individuals in understanding the estate planning options available under NPS, such as nomination, annuity options, and withdrawal norms, to ensure smooth transfer of pension wealth to their beneficiaries.
By leveraging CA knowledge and expertise, it can help individuals to make informed decisions while selecting the National Pension System (NPS) in India, taking into consideration their financial goals, risk appetite, tax planning, retirement planning, compliance requirements, and estate planning needs.
