They would not be able to give their best if they felt insecure, he said.īut Rajasthan’s finances are stretched. The state was reversing course because employees were worried about their post-retirement security under NPS. Rajasthan Chief Minister Ashok Gehlot, who also holds the finance portfolio, has played on this. The amount one will get as pension is known. The old pension system has the benefit of familiarity. Gautham Bhardwaj, who was one of the authors of the Oasis (Old Age Social and Income Security) Report of 2000 says of NPS that “the overall corpus in individual accounts will be very high.” The report formed the basis for NPS. So, it is hard to say with certainty what their pension will be. The first retirements will happen in 2035. No one has retired under the new pension system. Conversely, if they die prematurely in service, the family will have to settle for less unlike under the old scheme. In the earlier system, they would get pension only on completion of certain years of service. Not only would employees have accumulated a tidy sum at the time of retirement, they will also get the amount accruing in their accounts if they leave service prematurely. This is better than returns form Employee Provident Fund, Public Provident Fund and fixed deposits. The three fund managers had delivered annualised returns of 9.61 per cent, 9.65 per cent and 9.69 per cent since inception, that is, June 2009. As they advance in age, the share that can be invested in stocks gets reduced.Īccording to the NPS Trust, state employee subscriber funds amounted to ₹3.55 lakh crore as of February. Young subscribers can opt for a greater share of equity investments. Subscribers can opt for the safe option where all the money is invested in government securities but earns a lower return. Subscribers have three investment options, depending on their risk appetite and risk profile. It gets extinguished with the contribution and is not carried into the future. With NPS, the pension liability of the government is limited to the contribution it makes. If an annuity is not bought, the amount is taxed. The accumulated money cannot be withdrawn except at the time of retirement, when up to 60 per cent can be taken out and the rest has to be invested in annuities that pay a monthly income. These investments are held by banks as custodians. They are invested in government securities, high-rated corporate bonds and equities. The funds are invested by managers who are selected on a competitive basis. This goes into the subscriber’s account which is held by the NPS Trust. The central government contributes 14 per cent. Employees contribute a share – 10 per cent – of their salary and dearness allowance every month and the government as employer contributes a similar or higher amount. Here the pension contribution is defined. State governments (except West Bengal) also acceded to it. To contain the high and rising salary and pension bill of its employees, the central government implemented the National Pension System for its employees joining on or after January 1, 2004. The contribution is made entirely by the government. It is a share, usually half, of the salary drawn at the time of retirement. Under the old system, the pension benefit is defined. Rajasthan’s example might have a ripple effect and other states might follow. It also does not do justice to the old and the indigent who have little or no old age income support. It’s not fair on future taxpayers, who will have to pay for the pensions of those currently in service. This will strain the state’s already stretched finances. Reversing a reform measure which it has implemented since 2004 along with the central government, Rajasthan will revert to the old pension system for its government employees from next year.
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