Why in news?

• On February 23, Rajasthan government announced the restoration of old pension scheme for the government employees, who joined the service on or after January 1, 2004. The announcement meant that the National Pension System (NPS) would be discontinued in the State. Chhattisgarh also announced following Rajasthan regarding pension scheme.

About old pension scheme

• Old pension scheme is also known as Defined Pension Benefit Schemes.
• The scheme assures lifelong income, posetirement.
• Usually the assured amount is equivalent to 50% of the last drawn salary.
• The Government bears the expenditure incurred on the pension.
• The scheme was discontinued in 2004.

About National Pension System (NPS)

• The Vajpayee led Union government under took the decision in 2003 to discontinue the old pension scheme and introduced the NPS.
• The scheme is applicable to all new recruits joining the Central Government service (except armed forces) from April 1, 2004.
• On introduction of NPS, the Central Civil Services (Pension) Rules, 1972 was amended.
• It is a scheme, where employees contribute to their pension corpus from their salaries, with matching contribution from the government.
• The funds are invested in earmarked investment schemes through Pension Fund Managers.
• At retirement, they can withdraw 60% of the corpus, which is Tax-free and the remaining 40% is invested in annuities, which is taxed.
• It can have two components —Tier I and II.
• TierII is a voluntary savings account that offers flexibility in terms of withdrawal, and one can withdraw at any point of time, unlike Tier I account.
• Private individuals can opt for the scheme.

Changes introduced in 2019

• In 2019, the Finance Ministry said that Central government employees have the option of selecting the Pension Funds (PFs) and Investment Pattern in their Tier I account.
• The default pension fund managers are the LIC Pension Fund Limited, SBI Pension Funds Pvt. Limited and UTI Retirement Solutions Limited in a predefined proportion.

Regulatory authority to manage the funds of government employees that are linked to the market

• The Pension Fund Regulatory and Development Authority (PFRDA) is the regulator for NPS.
• PFRDA was set up through the PFRDA Act in 2013 to promote old age income security by developing pension funds to protect the interest of subscribers to schemes of pension funds.

About subscriber base

• As on February 28, there were 22.74 lakh Central government employees and 55.44 lakh State government employees enrolled under the NPS.

Latest directive from the government

• The Department of Personnel and Training (DoPT) informed Parliament on March 24 that there is no proposal to reintroduce the old pension scheme for Central government civil employees under consideration of the Government of India.
• Union Minister Jitendra Singh said that the returns being market-linked is a basic design feature of the NPS.
• Pension being a long-term product also enables the investments to grow with decent returns, despite short term volatility.
• The prudential guidelines stipulated by the PFRDA, the skills of the professional Fund Managers chosen through a rigorous process, and choice of asset allocation across various asset classes (Equity, Corporate Bond, Government Securities) enable the subscriber’s accumulations to grow over the long term, riding over the short term volatility.

Impacted government employees of Rajasthan and Chattisgarh

• According to Rajasthan Karmachari Samyukta Mahasangh president , the move would benefit over 4 lakh employees.
• In Chattisgarh, the move will benefit over three lakh employees, who joined service after January 1, 2004.