In a move that is likely to fatten the government employees pockets, the Centre has raised government’s contribution towards the National Pension Scheme (NPS) to 14 per cent of the last drawn basic salary, 4% hike from the current 10%. However, the maximum employee contribution has not been altered, it remains at 10 per cent. Apart from the 4% hike towards NPS scheme, Cabinet also approved tax incentives under 80C of the Income Tax Act for employees’ contribution to the extent of 10 per cent. At present, the Centre and the employees contribute 10 per cent of the basic salary each to NPS.
The NSP scheme is a government-sponsored pension scheme that was launched in January 2004 for government employees. However, in 2009, it was opened to all sections.
As per the scheme, subscribers contribute on a monthly basis to their pension account and on retirement, they can withdraw a part of the corpus in a lump sum and use the remaining corpus to buy an annuity to secure a regular income after retirement.
Another major amendment is the higher cap of lump-sum withdrawal from the NPS account at the time of retirement. Now, as per the new rules, 60 per cent of the total accumulated fund, can be withdrawn and the remaining will be used to buy an annuity to secure a regular income after retirement.
However, if any subscriber doesn’t withdraw any amount from the NPS fund accumulated at the time of retirement, and transfers it to annuity scheme, then his pension would be more than 50 per cent of his last drawn pay.
And moreover, employees will have the option to decide on investing their annuity either in fixed income instruments or equities.
The government is yet to decide on the issue date of the new scheme, reports suggest that many of the changes require an amendment to the Income Tax Act and hence will come into effect from April 1, 2019.