Comparison of New Pension Scheme (National Pension Scheme)
GConnect has published an article titled, ‘NPS is far beneficial than Government Pension’ – Comparison of New Pension Scheme (National Pension Scheme) and Central Government Pension
A very popular website among Central Government employees, GConnect, which began functioning more than 8 years ago, continues to be a strong line of communication between the Central Government and its employees.
The article that was published yesterday seeks to answer critics who claim that the new pension scheme is outright bad. GConnect has made it very clear that the opinions expressed in the article belong to its writer, Mr. Dorai, Deputy Director, ESIC Model Hospital and that the website doesn’t necessarily subscribe to them.
The ‘study report,’ that compares the salient features of the old(Central Government Pension Scheme) and new pension schemes, is bound to create controversies.
While various Central Govt employees associations and federations are putting pressure on the Government to withdraw the new pension scheme and enforce the previous one, we believe that this article is going to make a huge impact.
The writer begins the article by stating that those who are opposing the new pension scheme, with more benefits than the old pension scheme, are doing so due to their ignorance. The article also explains how the new pension scheme could create huge wealth.
The report gives as an example, the case of an employee who joins the Central Government employment as a Upper Division Clerk(UDC) in 2014 and retires after 35 years service, in 2049. The report gives a comparative study of how the pension fund grow each of these 35 years. The study also assumes a regular dearness allowance of 6% every six months, and an annual increment of 3%.
The study also assumes that, at an interval of 10 years, the employee gets 3 promotions during his service tenure. Most importantly, it is assumed that matching the employee’s contribution, the Government’s contribution too would witness an 8.7% increase per annum.
At the time of retirement, the employee is likely to get Rs. 2,87,26,201, which is split into two shares – 40% and 60%, which amounts to Rs. 1,14,90,481, and Rs. 1,72,35,720, respectively. 60% of the lumpsum pension wealth is given at the time of retirement. The remaining 40% is invested in an annuity scheme.
It is stated that the monthly pension will be a minimum Rs. 83,306. In addition to this, at the age of 70, the employee gets the remaining 40% back. The article strongly claims that this money could be the gift that the person leaves behind for his future generation.
The article’s highlight feature is the claim that if the Pay Commission recommendations are taken into account, the amount could be much higher and that the UDC could get as much as Rs. 5 crores at the time of retirement.
According to the old Govt pension scheme, the employee’s monthly pension amount would be Rs. 1,00,934, and after his demise, his spouse would get Rs. 10,317 plus Dearness Allowance. After his/her death, there are no more benefits for the family.
The article is indirectly stating that the absence of gratuity and other such benefits is not a huge issue. According to the old Govt pension scheme, at the time of retirement, the employee would make only Rs. 38,32,550, which is Gratuity (16.5 months) + EL Encashment + Commutation.
While discussing the General Provident Fund (GPF), the article assumes that since nobody leaves anything much in this fund, its overall impact on the total pension fund would be minimal.
The writer concludes his article by declaring that those who oppose the new pension scheme lack intelligence.
the article says that a person joins as UDC in 2014 and retires in 2049 and in 10 years he gets 3 promotions…..is the writer insane…..where do you get entry as UDC….and fruther how can one be in service for 35 years…..who the @#$#@$ gets 3 promotions in 10 years…….the writer of the article has not done his research properly and is unfit to publish such a paper where he has not done proper homework….
The assumptions towards NPS are very optimistic while they are negative for Old pension scheme (No change in any limit). Your calculations also shows that the pension in old pension schemes are higher even in present rules (If person live longer). Furthermore, the different ceiling limits always change with the time. And old scheme pensioner get DA which continuously increases with time. The life expectancy is also increasing with the improved health care facilities. If you take the inflation adjusted return of NPS then one would need Rs 7 Crore in annuity to get Rs 70,000 /- as pension if he/she has to retire after 22 years from today. Overall NPS is not bad but the government contribution should be at least increased to 25% from 10% (at present).
Dont make fool of us. NPS will give not more than half the money at end as compared to ( pension commutation + gratuity ) . And believe me there is no contribution by Govt. All that govt will give will be sucked up in form of 30% tax. U contribute 1000 govt puts 1000 total 2000 tax 30% i.e. 600 Wat is left 1400 How much u get 60% of this i.e. 840 it is less than wat u contributed even ur money is take by govt. and forget about pension By all means it will be about 40% as compared to old pension scheme and worse it wont increase with pay commisions and DA. It is better to die at 60 if u have such protection. All those praising are either big fools or making fool the sufferer like us
this article not considered few things
1: old defined benefit based pension is inflation adjusted
while anyone computes wealth under NPS is mere assumption.nobody is guaranteeing that one would get this amount. lot of uncertainty while old pension one is sure what to get
2 GPS is ur money .it is up-to you wheather want to spend now or later.that is individual habit so should not be compared.if one is very financially disciplined the amount he has has been depositing in tier 1 mandatory accound will deposit in GPS then he will be whole amount qwner.
3: the person who are advocating see their service life at what post they have worked in majority of service life and they get pension of what they are at end of service.let somebody spent majority in lower grade pay but last year he become officer then he will be getting officer s pension unlike NPS where whole corpus decide on what you are in majority of service life.
it is going to benefit only corporates and company who get a lot money to invest in market ,to lend to industries and earn interest but in indian scenarion where social security is dismal condition and a lot of corruption in banks and NBFCs how could ailing and old person think their old age relying NPS. return.
DEVENDAR PRASAD says
I agree with the author of the article ‘’NPS is far beneficial than Government Pension’’ for the following reasons:
1. One thing every one forget is under NPS scheme the government servant gets huge amount on retirement which is many times more than what a government servant under old pension scheme gets as per the comparison shown in the article’ . Whatever be the salary increase or inflation factor after 35 years, but the proportion of variation between the retirement benefits of old defined pension scheme and the corpus in new pension scheme shall grow at same level because the mathematical principal can never get changed.
2. With this money a government servant can even acquire a residential property for his dependants which gets appreciated for generations to come and as well comfortably live on interest on the other 40% invested in annuity in Life Insurance etc from where the government servant, his spouse and parents can get pension till death . Thereafter the 40% annuity amount can be withdrawn fully by the children and the blood relations of the government servant if there are no children left. This will also be of immense help to the dependants in addition to a residential property left behind by the government servant..
3. Whereas with the very little retirement benefits paid in cash to government servant under old defined pension scheme he cannot think of acquiring a property. He has to depend on monthly pension which comes to an end after death and there afterwards no financial security available for the dependents.
4. One should know why a government servant under old pension scheme opts for commutation of 40% of basic pay for 8.154 years and is ready to take less pension for 15 years thus permanently losing his 40% of basic pension amount for almost 7 years towards interest adjusted against commutation of pension for 8.154 years.
Because having more money has its own advantage and is liked by all the government servants than depending on more monthly pension. If there is a provision for 100% commutation of basic pay, I am quite sure every one will be ready to opt for it. Even if government give option for Golden Hand Shake Scheme, more than 90% of government servants under old pension scheme may prefer it.
MAHAVEER JAIN says
MAHAVEER JAIN says
November 16, 2014 at 11:21 pm
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THE ARTICLE OF THE AUTHOR MR.. DORAI, DEPUTY DIRECTOR, ESIC MODEL HOSPITAL, GIVES MUCH ENLIGHTENMENT ABOUT THE BENEFITS OF NPS WHEN COMPARED TO GOVERNMENT PENSION SCHEME… GREAT NEWS..
THE GOVERNMENT SERVANTS UNDER NPS SCHEME ARE LUCKY TO TAKE SUCH HUGE PENSION WEALTH BECAUSE OF EQUAL SHARE OF GOVERNMENT CONTRIBUTION WHICH RUNS INTO CRORES AS A RESULT OF CUMULATIVE INTEREST ON SUBSCRIPTION AND INTEREST ON TOTAL YEARLY BALANCE OF INVESTMENT WHICH INCREASES BY LEAPS AND BOUNDS EVERY YEAR AS SEEN FROM THE CALCULATION IN THE ARTICLE AT 8.7% INTEREST. .. THE NEW PENSION WEALTH AS A RESULT OF GOVERNMENT SUBSCRIPTION ALONE COMES TO MUCH MORE THAN THE RETIREMENT BENEFITS UNDER GOVERNMENT PENSION SCHEME INCLUDING THE MONTHLY PENSION THAT THEY MAY DRAW TILL DEATH.. WHAT IS MORE THE NPS PENSIONER HAVE AN ADDED ADVANTAGE OF TAKING THE 40% INVESTMENTS IN ANNUITY ALSO WHICH DEFINITELY TAKES CARE OF HIS DEPENDENTS AND THE DEPENDENTS OF HIS DESCENDENTS FOR GENERATIONS AS RIGHTLY POINTED OUT BY THE AUTHOR.
if we pay every month Rs 3000 to LIC, SBI MF, icici or share market then we will get Rs 31290754/- ( 3 crore) on after 25 year’s with insurance coverage
Big difference between NPS (new pension scheme)and OPS(old pension scheme)(GPF)
* No need investment for pension from monthly pay
* Without investment OPS will get pension
* No Relationship with pension & GPF
* SHOULD be inverse some amount ever month from pay
In case of Central Government Pension, an employee doesn’t have to deposit any money with the govt. every month.
If this money is invested in a financial instrument, it will yield good return to a govt. employee after many years.
This point should also be taken note of while making comparison between Central Govt. Pension and New Pension Scheme.
MR. DORAI IS ABSOLUTELY RIGHT. NEW PENSION SCHEME APPEARS TO BE MUCH BENEFICIAL THAN GOVERNMENT PENSION. THE NPS SCHEME UNDER TYRE I restricting withdrawal really makes a government servant a multi milllionar.
Whereas a Government Pensioner takes home very less retirement benefits. As rightly pointed out he will be exhausting all his GPF savings by frequent withdrawals and has to depend on his pension only for survival. When he dies his dependents will not be having any financial support. Only one in hundred may prudently save the money in GPF without withdrawal. The rest, they don’t even spare festival advance because it is interest free.