New Pension Scheme for Central Government Employees: After the retirement of any government employee, his pension is his biggest support. New Pension Scheme is also a pension scheme launched by the Government of India to secure the financial future of individuals after retirement.
A retirement person feels financially secure in the future with a pension plan.
At the same time a systematic and well defined pension scheme also plays an important role in enhancing the strong social structure for the country.
This is not only for government employees but a person working in any sector can get the benefit of this scheme.
In this article, we have given information about the New Pension Scheme especially keeping in mind the central government employees , but it is equally useful for all NPS holders.
So let’s know what is the New Pension Scheme and when it was launched by Central Government.
Related post: Important NPS Tax Benefits for Government Employees
Implementation of New Pension Scheme:
On 22 December 2003, the Central Government announced the New Pension Scheme and it was implemented from 1 January 2004 for all new government employees except the Armed Forces. That is, this pension scheme was introduced for the employees of the Central Government, other than the Armed Forces, who have joined the services after December 31, 2004.
New Pension Scheme was started in April 2004 in many states.
Despite the announcement of the New Pension Scheme in December 2003, the Pension Fund Regulatory and Development Authority of India (PFRDA) took almost a decade to set up under the PFRDA, 2013.
Even those who had joined government services from January 1, 2004, were part of this new pension scheme, but they did not get the benefits of starting with an individual NPS account for many years. Because at that time there was no single developed methodology related to NPS.
That is, till then facilities like CRA, PRAN, Fund Managers were not available. But employees covered under this pension scheme continued to contribute to it.
In April 2007, PFRDA appointed NSDL (National Securities Depository Limited) as the CRA (Central Record Keeping Agency). But still government employees were not getting to know much about deduction from their salary towards NPS.
Also those government employees were neither aware of their fund managers nor had any option to choose the funds.
Eventually, by the end of 2007-08, three pension fund managers namely LIC Pension Fund, SBI Pension Fund and UTI Retirement Solutions were assigned the task of managing the fund under the NPS contribution of the central government.
In May 2009, this scheme was opened for general public apart from government employees.
What is New Pension Scheme?
New Pension Scheme is also known as National Pension System. This pension scheme is regulated by the Pension Fund Regulatory and Development Authority of India (PFRDA).
One of the main objectives of the new pension scheme launched by the government was that it wanted to reduce its pension liability.
Also, this scheme is also available to the general public, so under this scheme any person can decide where to invest his money.
This pension scheme is the same for all the people, be it central or state government employees, corporate employees or other individuals. But when it comes to its operation, there is a difference in some of the rules of this scheme for central and state government employees.
The New Pension Scheme is not just a pension scheme like the old pension scheme was. This is an investment plan also. That is, the contribution made by an employee or common person under NPS is invested in the market. This investment is done in Debt and Equity market.
On the basis of this investment, a part of the profit that the government gets, an employee gets a pension after retirement.
In this way, this pension scheme is completely based on market risk. That is why NPS is being opposed by government employees. They believe that it is not necessary that the market will always give good returns and this will affect the pension they get every month.
Types of Accounts under New Pension Scheme:
Any person can open two types of accounts under the New Pension Scheme – Tier-I and Tier-II.
When a person enters a government job, he has to compulsorily open a Tier-I account under the New Pension Scheme.
Thus, it is not a voluntary savings account and the government employee has to make mandatory investments in it.
The amount invested in this is also fixed. The amount deducted from his monthly salary is deposited in the Tier-I account of an employee and some amount is deposited by the government.
The amount deposited by the employee is 10% of the sum of his Basic Pay and DA and the amount deposited by the government is 14% of the sum of Basic Pay and DA of the employee.
In addition to this fixed deduction, the employee may Tier- One can invest an amount of Rs.50,000 or more in the account.
Tier-II account is opened only if the employee has a Tier-I account open. Its special feature is that it is a voluntary savings account. That is, any government employee can open this account and invest the amount as per his wish.
Under NPS, where an employee cannot make premature withdrawal from Tier-I, from Tier-II he can also do it before maturity.
How to open account in New Pension Scheme-
Government employees who are compulsorily covered under the New Pension Scheme are required to submit the duly filled CSRF (Subscriber Registration Form) to their respective DDO to open Tier-I Account.
On the basis of the details filled in this form, that government employee is allotted PRAN (Permanent Retirement Account Number) by CRA.
This form can be seen from CRA website or Click here to see the form .
The employee is required to submit three copies of the duly filled CSRF along with necessary documents to their respective DDO.
But keep in mind that the DDO with whom this form is being submitted must be registered by CRA otherwise he will not be able to forward the filled form for further action. Because only DDO is authorized to send this form to PAO.
The employee has to fill the following details in the Subscriber Registration Form-
- Personal details, such as- about identity, address, pan card details, Aadhaar number, contact details, bank details etc.
- Giving consent for linking of Aadhaar to other places related to PRAN.
- give employment information
- Describing Nominee
- Giving option for opening Tier II account
- FATCA (Foreign Account Tax Compliance Act) declaration form
The form submitted by the employee is forwarded to the PAO after verifying the concerned DDO. The PAO then verifies that form and forwards it to the CRA for PRAN allotment.
The CRA allots a PRAN (Permanent Retirement Account Number) based on the employee’s details given in that form.
PRAN is a unique number which is unique for all the employees and it remains till that employee is not taken out of NPS.
After allotment of PRAN, CRA sends a PRAN Kit to the concerned Nodal Office of that employee. That Nodal Office forwards to the PAO and the PAO forwards to the concerned DDO.
A PRAN kit contains the employee’s PRAN card, details of that employee, also known as Subscriber Master Report and an information booklet.
When the PRAN kit is received by the concerned DDO, he finally hands over that kit to the employee.
In this way a government employee is successfully allotted PRAN by the CRA.
Now every month a certain amount (Basic+10% of DA) starts getting deposited in his Tier-I account from the salary of that employee.
Exit of Government Employee from New Pension Scheme:
Under NPS, a government employee can withdraw from NPS as per the PFRDA (Exits & Withdrawals) Regulations 2015 under the following circumstances:
On Normal Superannuation
Here Normal Superannuation means that the said employee has done his full job.
In simple words, under the New Pension Scheme , at the time of retirement of a government employee, 60 percent of the accumulated pension amount in his NPS account is paid to the employee as a lump sum amount and the remaining 40 percent is used to buy annuities by government employee.
Only the returns received from these annuities are provided by the central government as pension to the employee.
If the total amount in the account of the employee on the date of retirement is Rs 2 lakh or less, then that employee can withdraw the entire amount from his NPS account.
On death
If a government employee dies while in service, at least 80 percent of the pension amount accumulated in his NPS account has to be used to buy annuities.
The return on these annuities is given as monthly pension to the spouse of that government employee.
The balance amount of pension accumulated in the NPS account is paid in lump sum to the person nominated by the Government servant or the legal entitlement.
If the total amount in the NPS account of a government employee on the date of death is Rs 2 lakh or less, then the person nominated by him or a legally entitled person can withdraw the entire amount from the account.
If the family members of the employee opt for Family Pension then the accumulated pension amount under NPS is transferred to the bank account of the Nodal Office. After that that nodal office takes further action.
Premature withdrawal in normal condition –
There may also be a situation with an employee that he wants to get out of the New Pension Scheme only in normal circumstances.
In such a situation, only 20 percent of the pension amount accumulated in his NPS account is given to the employee as a lump sum.
The remaining 80 percent is used to buy annuities to provide monthly pension to the employee.
If the total amount accumulated in the NPS account of the employee on the date of resignation is Rs 1 lakh or less, then that employee can withdraw the entire amount.
Conclusion:
The New Pension Scheme launched by the Central Government in 2004 is not only a pension scheme but also an investment scheme. It is mandatory for a person who got a government job on and after January 1, 2004, to join the new pension scheme.
Since the inception of this scheme, till now, by making many changes, efforts are being made by the Central Government to benefit the employees of the Central Government.
Nevertheless, the scheme is being opposed by the government employees. The main reason for which is the dependence of the pension after retirement on the market. There are many other such rules in the New Pension Scheme, which are being opposed by the government employees.
Let us see how much more flexibility the government will bring in future in this new pension scheme.
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Not fulfill of employees hope.
NPS is an good investment cum pension instrument but same benefits to be given to govt servants as well as non govt persons .
1. Amount contributed by a citizen , some amount shud be deposited by govt ,
2. Pension amount shud be declared as per last salary drawn by a non govt employee
3. Returns should be on EEE pattern. Exempt , exempt , exempt .
4. Sec 80 CCD li.it for NPS should be increased from Rs 50,000 to Rs 1.25 lac
Same as above
It is good information for the NPS holders and easy to understand the way you explained in detail is appreciated, tq
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Under NPS a detailed deposit contribution, perio of maturity, one time lums sums deposit scheme, nomination benefits, after the death of of NPS pensioner and his spouse the principal amount deposited in NPS funds be released to the secondary nominees. It is real fact or rumour that after the death of the NPS beneficiary the principal amount forfietted by the Govt. Or the NPS authority / Agency who maintained the NPS contributed fund or deposited principal amount. That’s why the general public not taking keen interest in saving in NPS for security of his hard money which is forfietted by the concerned agencies after the death of NPS pensioner couple. It’s required assurance to the NPS policy holder that your principal amount never be forfeited and same will be released to the 2nd nominees . If the 2nd nominees wants to continue NPS then it might be continued as a fresh NPS policy holder. Please do the needful accordingly in the general public interest. Thanks
Here we have given information related to nps of government employees and you know that it is mandatory for them to get nps deduction from their salary.