Before heading for the big battle of the 2019 Lok Sabha elections, the central government on Thursday decided to award its employees with a gala gift. Those who joined the services in or after January 2004, will get a hike under the National Pension Scheme (NPS).
Top sources in the government said that the revamped NPS will reap huge benefits for the employees who have been in service for 14 years or less.
Currently, the employees contribute 10 per cent of his/her basic salary to the pension fund and a matching amount is contributed by the central government. As per the revamped scheme, while the employee’s contribution will remain at 10 per cent, the government will now contribute 14 per cent of the basic salary. The increased contribution will raise the corpus built by the time of retirement at the age of 60 years.
The existing NPS for central government employees in this category will witness major amendments.
The key benefits will require changes in the finance bill and that’s why the benefits may come into effect from April 1, 2019.
Senior officials in the government said, “The biggest upgrade will be in form of the contribution by the government towards the pension fund.”
The Centre has withheld the announcement of the benefits owing to the Model Code of Conduct in some of the states because of the ongoing assembly polls.
Also, while the 2004 scheme said that the employee’s contribution could not be used for tax exemptions enjoyed under Section 80C of the Income Tax Act, it is set for a change now.
The employee’s contribution would be eligible for tax exemption along with other contributions up to the limit of Rs 1.5 lakh per annum under Section 80C.
The other significant tweak in the scheme is on what the employee does with the corpus at the time of retirement. Current rules prevent an employee from withdrawing more than 40 per cent of the accumulated fund while the remaining 60 per cent are converted to annuity which pays for the employee’s monthly pension.
This is also set for a change. Central government employees, who joined in or after January 2004, can withdraw 60 per cent of the accumulated funds while the remaining 40% will be converted to equity.
A senior bureaucrat said, “This will bring more cash in the hands of the retired employee for him to make an investment in a home or other needs like a child’s marriage etc.”
The other relaxation is regarding where the pension funds of the employee could be invested. Current rules allow only 15 per cent investment in equity. Starting April next year, the pension funds can be invested in other options as well with no cap.
Another amendment will virtually bring the pension rules of central government employees who joined post January 2004 at par with those who retire in 2003.
If an employee at the time of retirement doesn’t withdraw any of the accumulated amount, the entire corpus (100 per cent) will be converted to equity and that will make the pension per month more than 50 per cent of the last basic salary withdrawn.