Govt may sweeten new pension plan

TO AVERT SETBACK FROM SHIFT TO OPS

- PRASANTA SAHU

• Guaranteed pension of 50% last-drawn salary

WITH DEMAND GROWING for the old pension system (OPS) with assured benefits, the Centre and some state governments are exploring ways to salvage pension reforms, by treading a middle path between the fiscally expensive OPS and the reform-oriented National Pension System (NPS).

One option being considered is to offer guaranteed pension to government staff at around 50% of the last pay drawn under the NPS by tweaking the existing scheme without burdening the exchequer too much. While OPS is based on the concept of defined benefits, the principle that underlies NPS is defined contribution.

Currently, under the NPS, also called new pension scheme, 60% of the accumulated corpus from contributions during a person's working years is allowed to be withdrawn at the time of retirement. Such withdrawal is also tax-free. The balance 40% is invested in annuities, which according to an estimate, could provide a pension equivalent of about 35% of the last pay drawn. However, it is not a guaranteed pension as returns are linked to markets.

Officials reckon that the NPS could be revised in such a way that at the time of retirement, an employee gets back her contribution of roughly 41.7% (built from a contribution of 10% of pay) as a lump sum amount.

"An analysis showed that if the balance 58.3% corpus built from the central/state government contribution (14%) is annuatised, the pension in NPS could be around 50% of last drawn salary," an official aware of the deliberations in the government said.