NPS Govt Contribution Rate 14% of Basic Pay + DA
The Central Government has increased the mandatory contribution by Central Government from 10% to 14% of the basic pay+DA for all the Central Government employees covered under National Pension System Tier-I with effect from 1.4.2019.
Enhancement of the Government’s contribution from the earlier 10% of Pay + DA to 14% of Pay + DA
The National Pension System (NPS) is a mandatory provision for all Central Government employees (excluding those in the Armed Forces) recruited on or after 1 January 2004. Subsequently, all State Governments except West Bengal have implemented the NPS for their employees as well. Government personnel contributes 10% of their salary each month and the Government provides a corresponding amount. The employer’s contribution rate for Central Government employees has been increased to 14% as of 1 April 2019.
Modifications in New Pension Scheme
The Government of India has implemented a variety of reforms to ensure the safety of National Pension System (NPS) subscribers. These reforms include increasing the government’s contribution from 10% to 14% of pay and dearness allowance (DA), offering freedom of choice when selecting pension funds and patterns of investment, providing compensation for non-payment or delayed payment of contributions during 2004-2012, offering tax exemption under the Income Tax Act, 1961 Section 80C, and raising the tax exemption limit for lump-sum withdrawals up to 60%, thereby making the withdrawal exempt from income tax.
NPS Vs OPS
One of the main demands of Central Government staff is to terminate the National Pension System and put in place the Old Pension Scheme!
The National Pension Scheme substituted the old pension system with effect from April 1, 2004 for all Central Government employees. Under the earlier system of pension in the Central Govt, retirees got a monthly pension amount that was equivalent to 50% of their last drawn basic salary. In comparison, NPS involves a contributive pension system wherein employees contribute 10% of their salary (basic pay plus dearness allowance) and the government adds 14% to the employees’ NPS accounts.
The funds in the NPS are managed by authorized pension fund managers who are approved by the Pension Fund Regulatory and Development Authority. It is the responsibility of the employee to purchase an annuity plan from authorized pension suppliers. On retirement, the employee must buy an annuity plan which will grant a minimum of 40% of the accumulated corpus as a monthly pension. The remaining amount can be withdrawn as a single lump sum.
What is the Old Pension Scheme?
OPS is a retirement scheme approved by the government, which offers a monthly pension to the recipients until the end of their service life. The monthly pension amount is equal to half of the last salary earned by the individual.
What is the New Pension Scheme (NPS)?
It is a retirement plan that provides holders the option to access 60% of their investment after retirement. This plan was initiated by the Indian government in 2004. The left-over 40% must be put into annuities to get a regular pension. Only government staff members can switch back to the advantages of the Old Pension system in case of the employee’s passing or disability. Let us observe some of the distinctions between the old pension system and the new pension system.
Also Check: Central Government Pay Matrix Table 2022 PDF
PRABHAHARAN MARIAPPAN says
This to request you to correct the mistake in the information provided regarding calculation of Pension in Old Pension Scheme. Pension was calculated at 50% of the last drawn basic pay if the employee has completed 30 years of qualifying service. Pension was reduced proportionate to the service below 30 years. DA was not taken into consideration for calculating pension. But DA given at the existing percentage on the basic pension.
Thank You, sir!