Finance Minister Nirmala Sitharaman has announced the formation of a committee to review the National Pension Scheme (NPS) under the leadership of the finance secretary. The objective of the committee is to find a solution to the current issues in the NPS.
Sitharaman mentioned during her Lok Sabha address that there have been concerns about the need to improve the pension system for government employees, and the committee will design an approach that addresses their needs while maintaining fiscal prudence. The approach will be designed for adoption by both central and state governments.
The NPS was introduced in 2003 and became effective on January 1, 2004. Unlike the old pension scheme, the NPS was based on a contributory system where the government provides the pension amount.
The purpose of the NPS was to provide old-age income security in a financially sustainable manner and to convert small savings into investments. Under the NPS, 10% of an employee's basic salary and dearness allowance are deducted from their salary, and the government adds the same amount to the pension fund.
Upon retirement, an employee will receive 60% of the fund back, and the remaining 40% must be compulsorily invested in an annuity for pension. However, employees in several states have been calling for a change in the NPS. States such as Rajasthan, Chhattisgarh, Punjab, and Jharkhand have already returned to the old pension scheme (OPS). In Haryana, protests are ongoing for the same cause.
The committee's formation is an important step towards addressing the concerns of government employees regarding the NPS. The committee will analyze the existing scheme and recommend changes that can make the NPS more attractive to employees. While maintaining fiscal prudence is necessary, it is also essential to address the needs of employees to ensure their financial security during their retirement years.
