27 Nov 2023 National Pension System (NPS)
This article covers “Daily Current Affairs” and the topic details “ National Pension System (NPS)”. This topic has relevance in the Economy section of the UPSC CSE exam.
GS 3: Economy
Why in the news?
The Union Home Minister’s recent announcement to deliberate on the restoration of the Old Pension Scheme (OPS) has reignited discussions on the National Pension System (NPS).
As a retirement benefit scheme introduced by the Government of India, the NPS aims to provide a regular income post-retirement for all its subscribers.
Key Features of the National Pension System (NPS):
- Inception and Expansion:
-
- Launched on January 1, 2004.
- Initially for new government recruits, it was extended to all citizens, including those in the unorganized sector, on a voluntary basis from May 1, 2009.
- Voluntary Nature:
-
- Open to all citizens, allowing flexibility in investment amounts at any time.
- Permanent Retirement Account Number (PRAN):
-
- Each subscriber is assigned a unique PRAN for account identification.
- Portability:
-
- NPS accounts and PRANs remain constant despite changes in employment, location, or state, accessible from anywhere in India.
- Regulatory Authority:
-
- Governed by the Pension Fund Regulatory and Development Authority (PFRDA).
- Defined Benefit Absence:
-
- Unlike traditional pension schemes, NPS lacks a defined benefit at exit; accumulated wealth depends on individual contributions and investment returns.
- Investment Structure:
-
- Individual savings are pooled into pension funds managed by PFRDA-regulated professionals.
- Diversified portfolios include Government Bonds, Bills, Corporate Debentures, and Shares.
- Corpus Growth and Withdrawal:
-
- Contributions accumulate until retirement, with market-linked returns.
- Subscribers can exit before retirement or opt for superannuation.
- Two Personal Accounts under PRAN:
-
- Tier I Account: Non-withdrawable, designed for retirement savings.
- Tier II Account: Voluntary savings with withdrawal flexibility, not eligible for tax benefits.
Prospects of Restoring the Old Pension Scheme (OPS):
- The government’s consideration of restoring OPS prompts a reevaluation of retirement benefit schemes, emphasizing the need for a balanced approach between voluntary contributions and defined benefits.
- The committee’s report will likely play a crucial role in shaping the future of pension schemes in India.
| Aspect | Old Pension Scheme | National Pension Scheme (NPS) |
| Guarantee of Income | Guarantees a lifelong income post-retirement. | Participants contribute, and the scheme does not guarantee a fixed income. |
| Financial Responsibility | Government bears the expenditure on the pension. | Employees contribute, and the government may match the contributions. |
| Monthly Payment | Assures a fixed monthly payment, typically 50% of the last drawn salary. | Contributions are invested in earmarked schemes with potential market-linked returns. |
| Contribution Structure | The entire financial responsibility lies with the government. | Employees contribute a portion, and the government may contribute as well. |
| Investment of Funds | Not applicable, as the government bears the financial burden. | Funds are invested in earmarked investment schemes through Pension Fund Managers. |
| Withdrawal at Retirement | Monthly pension payment continues, as per the predetermined amount. | At retirement, a portion (60%) can be withdrawn tax-free, while the remaining (40%) is invested in annuities. |
SOURCE:Will deliberate on Old Pension Scheme after panel report: Amit Shah – The Hindu
Q.1 With reference to the provided information on the National Pension System (NPS), consider the following statements:
- The NPS was initially launched for new government recruits and later extended to all citizens
- The NPS Tier II Account is designed for non-withdrawable retirement savings.
Which of the statements given above is/are correct?
(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2
ANSWER: A
Q.2 In light of the ongoing discussions regarding the potential revival of Old Pension Scheme (OPS), critically assess the implications of such a move on India’s pension landscape
No Comments