New Pension Scheme-How good is it?

Every thing you want to know about the New pension scheme for Central Government employees of India

Dear old pension scheme employees,how will you react if your GPF/EPF balance or annual interest is not available & you cannot even take loan from it but the government invests it in some stock market and finally when you retire,they give you only 60% or 20% of the fund,the rest is forcefully put in a pension annuity.Is that not what the Contributory pension fund to a new employee is?

 
Updates
About the TIER II scheme
India Post to distribute NPS to all citizen
LIC halts distribution of NPS to all citizen
NPS Govt notification dated September 8,2009(Needs Adobe Reader to open)
Order of Central Administrative Tribunal stating NPS as disadvantageous over old pension scheme
The Graphic Representation of NPS Architecture(Needs MSWord to open)
NPS available for all the Indian citizens,effective from May 1, 2009
Links
What's new??
About the TIER II scheme [21st September 2009]
Every thing you want to know about the New Pension scheme
New Pension scheme is not an oasis for retirement years + The origin of NPS

Join the Central Government Contributory Pension employees Forum
I was working in central goverment under new pension scheme from jan 2004 under new pension scheme.
i have quit that job in may 2007. Now i want to get back money which i have put under NPS,I have tried a lot but i cant get my money back till now. Department says we dont know the procedure for filling form under NPS.how to get back that money?

I was appointed to Department of Posts at age 56 on January 2005 and thus come under the new pension scheme.I got retired on April 2009.The Department has not given me any benefits other than the earned leave encashment until now.When asked about the contributory pension fund,I received the reply from the authority that they don't know about the procedure.

The new pension scheme for central government employees appointed on or after 1-1-2004 has raised several questions among employees as above for which even the supreme authorities does not have a answer right now.The scheme is still in a building up phase even after 6 years of announcing it.So how long are we supposed to wait? The formation of this website on September 11 2009 is an initial part of building up a Central Government Contributory Pension employees Forum to solve such issues of new pension scheme employees and to challenge the negative aspects of the NPS.Join the Central Government Contributory Pension employees Forum.The contacts will be published here soon.

About the New Pension scheme

The New Pension Scheme of Contributory pension is applicable to all Central Government Employees who joined after 1-1-2004.It has been in the pipeline for at least five years but it finally took shape in 2007-08. Although the government was pushing for the scheme after a law providing statutory backing to the regulator was enacted, the Left parties, which were supporting the UPA government, did not allow the passage of the Bill. So, last year, the government decided to go ahead by allowing the NPS Trust to enter management agreements with fund managers.

The new pension scheme was first announced in the Indian Budget-2003-04
http://www.prsindia.org/docs/bills/1167471772/bill74_2006123074_NEW_PENSION_SCHEME_NOTIFICATION.pdf

As per the notification,
The system would be mandatory for new recruits to the central Government
service except the armed forces and the monthly contribution would be 10
percent of the salary and DA to be paid by the employee and matched by the
Central Government. However, there will be no contribution from the Government
in respect of individuals who are not Government employees. The contributions
and investment returns would be deposited in a non-withdrawable pension tier-I
account. The existing provisions of defined benefit pension and GPF would not be
available to the new recruits in the central Government service.

The CPF recovery is just like the EPF where employee puts 10% of his salary+DA and and an equal contribution is put by the employer,which in case of the CPF is the Government of India.But whereas EPF allows Loan and full amount final withdrawal,no such facility is there for CPF and the whole contribution amount is locked up until the employee plans to retire.Also there are restrictions of 40% and 80% on retirement withdrawal.As per now,no tax relief is available on the CPF lump sum maturity amount because the principal applied is EET (exempt exempt and tax) whereas the investments qualify relief under section 80 CCD up to specified limits.

The new pension scheme for central govt employees appointed on or after
1-1-2004 is described in the Swamy's hand book-2007 page 264.
It says:

Retirement at 60yrs of age:
It is mandatory to invest 40% of pension wealth in an annuity to provide
pension for life time of the employee andhis dependent parents/spouse.

Retirement before 60yrs of age:
In cases where the employees leave the scheme before 60yrs of age,80%
of pension wealth is mandatory for investment.

The hand book also says that there will be no GPF or GRATUITY for the new pension scheme employees and pension benefits will be taxable.

There is a tier-ii option under construction substituting GPF for new employees but it reduces another 10% of pay.If calculated,thus we can see that the new pension scheme employees are actually getting 10 % less pay than the old pension scheme staff.[Details of Tier ii scheme]

So What benefits does the NPS offer?The government plans to have options,A,B and C based on the proportions in equity and fixed securities.

Under Option A, 60 per cent of the assets will be held in government securities, 30 per cent in investment grade corporate bonds and 10 per cent in equity. Under Option B, the asset allocation will be 40 per cent, 40 per cent and 20 per cent, respectively. Under Option C, 50 per cent of the assets will be held in equity and the balance 50 per cent will be split between government securities and corporate bonds.

But so far,only the default option exists as per the official website of NPS-http://npscra.nsdl.co.in/

So what is the default option as in the website?

As per the present guidelines of Pension Fund Regulatory and Development Authority(PFRDA),contribution towards pension will be invested in the default Schemes termed Scheme of various Pension Fund Managers in the proportion of 85% in fixed income instruments and 15% in equity and equity related instruments.

As per PFRDA notification on May 2009,the contribution was thus divided for three fund managers revised-29% LIC Pension Fund,31% in UTI retirement benefit plan,and 40% in SBI Pension Fund for the Financial year 2009-10.Source-(Financial Express dtd May 3rd 2009)

The above said percentage can be decided by the employee in the future and the option of percentage to be divided to the three fund managers is given in the NPS Subscription Form.


ADMINISTRATIVE STRUCTURE OF NPS

The administrative setup of NPS subscription is planned as:

Employee>Paying officer>DDO>PAO>PrAO>PFRDA/CRA/NSDL>Trustee Bank>Pension Fund managers

Download the Interim administrative arrangement in pdf format(Right click and save target as...)



IS THIS SCHEME GOOD?

There is a wide spread rumour that the new pension scheme offers amount in Lumpsum amount and therefore it is better than the old pension scheme.How much truth is there in it?Let's see...

Please note:The below calculations are based on pay of a Group C cadre of scale 5200-20200(2400 Grade Pay) and if the government puts the whole investment in fixed instruments of 8% annual interest.The percentage of investments in equity which is speculated cannot be calculated.It purely depends on how efficient the appointed fund manager is.The principal amount of contribution without interest otherwise is:
Based on 10 years-210000(employee contribution)+210000(Govt contribution)=Rs420000
Based on 20 years-540000(employee contribution)+540000(Govt contribution)=Rs1080000

Therefore the amount of pension you get is purely based on the scheme you chose.As per now,there is no scheme which allows to put 100% in fixed instruments and the figures are just to compare the retirement benefits of old and new pension scheme.

Old and New Pension scheme comparison after completing 10 years(before 60 years)

CPF Calculation

Contribution amt –yearly amount+balance+8% annual interest
1300 ist year-15600+1248=16848
1400 ii year - 16800+16848+2691=36339
1500 iii year-18000+36339+4347=58686
1600 iv year- 19200+58686+6230=84116
1700 v year-20400+84116+8361=112877
1800 vi year-21600+112877+10758=145235
1900 vii year-22800+145235+13442=181477
2000 viii year-24000+181477+16438=221915
2100 ix year-25200+221915+19769=266884
2200 x year-26400+266884+23462=316746

If equal government contribution also provides interest, Total tier-1 amount is 316746x2=Rs633492

80% in pension fund=506794
Amt you get at the time of retiring=Rs126698+Rs 3378 monthly pension (8% interest of Rs506794 in a pension fund)+no gratuity

For old pension scheme after 10 years
GPF =316746
Gratuity=110000[1/4*(last bp+da)*(10*2)]
Total amount= Rs426746+Monthly pension Rs 3500+da (minimum pension )

Thus Comparison of old and new pension scheme gives over Rupees 3 lakh less benefits in lump sum amount and lesser monthly pension for new employees after ten years of service for below 60 years retirement.




Old and New Pension scheme comparison after completing 10 years(reaching 60 years age)


If equal government contribution also provides interest, Total tier-1 amount is 316746x2=Rs633492

40% in pension fund=253396
Amt you get at the time of retiring=Rs380096+Rs 1689 monthly pension (8% interest of Rs253396 in a pension fund)+no gratuity

For old pension scheme after 10 years
GPF =316746
Gratuity=110000[1/4*(last bp+da)*(10*2)]
Total amount=Rs426746+Monthly pension Rs 3500+da (minimum pension )

Thus Comparison of old and new pension scheme gives over Rupees 50000 less benefits in lump sum amount and Rs 1800 lesser monthly pension for new employees after ten years of service for age 60 retirement.




Old and New Pension scheme comparison after completing 20 years(before 60 years)


CPF Calculation

Contribution amt –yearly amount+balance+8% annual interest
1300 ist year-15600+1248=16848
1400 ii year - 16800+16848+2691=36339
1500 iii year-18000+36339+4347=58686
1600 iv year- 19200+58686+6230=84116
1700 v year-20400+84116+8361=112877
1800 vi year-21600+112877+10758=145235
1900 vii year-22800+145235+13442=181477
2000 viii year-24000+181477+16438=221915
2100 ix year-25200+221915+19769=266884
2200 x year-26400+266884+23462=316746
2300xi year-27600+316746+27547=371893
2400xii year-28800+371893+32055=432748
2500xiii year-30000+432748+37019=499767
2600xiv year-31200+499767+42477=573444
2700xv year-32400+573444+48467=654311
2800xvi year-33600+654311+55032=742943
2900xvii year-34800+742943+62219=839962
3000xviii year-36000+839962+70076=946038
3100xix year- 37200+946038+78659=1061897
3200xx year-38400+1061897+88023=1188320

If equal government contribution also provides interest, Total Tier-1 amount is 1188320x2=Rs2376640
80% in an annuity pension fund scheme=1901312
Amt you get at the time of retiring=Rs475328+Rs 12675 monthly pension (8% interest of Rs506794 in a pension fund)+no gratuity

For old pension scheme after 20 years
GPF =1188320
Gratuity= 320000 i.e. [1/4*(last bp+da)*(no of every completed six month of service)]
Total amount= Rs1508320+Monthly pension approax Rs 16000+da (half of last bp+da )

Thus Comparison of old and new pension scheme gives over Rupees 10 lakh less benefits in lump sum amount and Rs 4000 lesser monthly pension for new employees after twenty years of service for below age 60 retirement.



Old and New Pension scheme comparison after completing 20 years(reaching 60 years age)

If equal government contribution also provides interest, Total Tier-1 amount is 1188320x2=Rs2376640
40% in an annuity pension fund scheme=950656
Amt you get at the time of retiring=Rs1425984+Rs 6300 fixed monthly pension (8% interest of Rs950656 in a pension fund)+no gratuity

For old pension scheme after 20 years
GPF =1188320
Gratuity= 320000 i.e. [1/4*(last bp+da)*(no of every completed six month of service)]
Total amount=Rs1508320+Monthly pension approax Rs 16000+da (half of last bp+da )

Thus Comparison of old and new pension scheme gives over Rupees 1 lakh less benefits in lump sum amount and Rs 9700 lesser monthly pension for new employees after twenty years of service for age 60 retirement.


And some final questions:

1.The Government notifications only explains about giving a fixed pension with this amount through a annuity and not about giving this huge amount of money back to the employee at anytime.So what happens to the huge principal amount(19 lakh in the case of a VRS) when the pension ceases after the pensioner and his dependent's death?

2.Why doesn't the government give the whole money of contribution as on EPF for the employee at the time of retirement to invest in bank atleast and enjoy interest or his choice of investment?Why is the government putting restrictions of 40% and 80% to be only invested in annuity pension scheme without giving any other choice to employee's hard earned money?

3.Isn't it a violation of Payment of Gratuity Act-1972 when the employer,who is the Government of India,has decided to give no gratuity to new employees without passing the new bill?

4.While EPF provides loan upto 36 months of wage,there is no scope for any loan in CPF,the money is blocked until the employee retires.What should a new employee do in case of an urgent requirement for building a house or marriage of children?

5.No amount is taken from Member to give Pension to the Member in case of EPF Pension scheme. Employer and Govt. contributes to Pension fund @8.33% and @1.16% respectively.Whereas in CPF,the whole contribution including the employees' is restricted.










Please note:The above calculations are based on pay of a Group C cadre of scale 5200-20200(2400 Grade Pay) and if the government puts the investment in fixed instruments of 8% annual interest.The percentage of investments in equity which is speculated cannot be calculated.

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Questions

I was working in central goverment under new pension scheme from jan 2004 under new pension scheme.
i have quit that job in may 2007. Now i want to get back money which i have put under NPS,I have tried a lot but i cant get my money back till now. Department says we dont know the procedure for filling form under NPS.how to get back that money?

Ans:Dear friend,Please file Right To Information Application with CPIO of Department of Pension and Public Grievances, Govt of India,New Delhi duly paying proper application fee and seek the copy of procedure in question.You can also submit it to your concerned DDO.You have every right to get the accumulated money.The formation of this website on September 11 2009 is an initial part of building up a new employees forum to solve such issues of new employees.We might plan to also give an RIT application,will let you know through the website.
posted by Syam @ 7:27 PM   51 comments
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