Recent updates regarding the National Pension System (NPS) have significant implications for central government employees.
On October 7, 2024, the Department of Pension and Pensioners Welfare, under the Ministry of Personnel, Public Grievances and Pension, announced new guidelines that affect employee contributions to the NPS.
Key Changes in NPS Contribution Rules
Here are the main points outlined in the new rules:
1. Mandatory Contribution
Employees are still required to contribute 10% of their salary each month to the NPS. The contributions will be rounded to the nearest whole rupee. For instance, if the contribution is Rs 1453.53, it will be recorded as Rs 1454.
2. Suspension and Contribution Continuity
If an employee is suspended, they can choose to continue contributing to the NPS. Should the suspension be later deemed a mistake, their contribution amount will be recalculated based on their revised salary.
3. Contributions During Probation
Employees on probation are also required to make contributions to the NPS. This ensures that all employees, regardless of their employment status, are actively participating in the pension scheme.
4. Absence Without Pay
Employees who are absent or on leave without pay are exempt from making contributions during that period.
5. Transfers and Contributions
If an employee is transferred to another department or organization, they are still obligated to continue their NPS contributions without interruption.
6. Corrections in Contributions
In cases of errors in contribution amounts, the correct amount will be deposited into the pension account, along with applicable interest. Delays in contributions will also accrue interest for the affected employees.
Understanding the NPS
Under the NPS, 10% of an employee’s basic salary and dearness allowance (DA) is deducted for the pension fund, while the government contributes 14%.
It’s important to note that NPS is linked to the stock market, meaning pension amounts are influenced by market fluctuations.
To secure a pension upon retirement, 40% of the NPS must be invested in annuities. However, due to the lack of a guaranteed pension after retirement, there have been ongoing protests from government employees for a more reliable system.
The Upcoming Unified Pension Scheme (UPS)
In response to employee demands, the Unified Pension Scheme (UPS) is set to be implemented on April 1, 2025.
This new scheme aims to relieve employees of the burden of funding their pensions. Key features include:
Government Contribution: The government will contribute 18.5% of the basic salary towards the pension.
Guaranteed Pension: Employees with at least 10 years of service will be entitled to a minimum pension of Rs 10,000.
Retirement Benefits: Alongside gratuity, retiring employees will receive 50% of their average basic salary from the last 12 months as pension.
