The Pension Scheme for Government Employees is a retirement benefits program that provides financial security to employees who have served in the government sector for a certain number of years. The New Pension Scheme, applicable since January 2004, offers a fixed monthly pension payment and other retirement benefits to eligible employees. National Pension Scheme (NPS) is a valuable pension plan that helps ensure a secure and comfortable retirement for government employees.
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The National Pension System (NPS) was introduced by the Ministry of Finance as a new pension scheme mandatory for all central government employees in civil w.e.f. 01 January 2004.
It is a defined contribution-based system where the pension wealth accumulates over a period until retirement.
The scheme is administered by the Pension Fund Regulatory and Development Authority (PFRDA) and has two primary tiers – Tier I and Tier II.
The National Pension Scheme (NPS) for government employees has some additional features as compared to the NPS for other citizens.Â
Here are some key features of NPS for government employees:
| Features | Details |
| Compulsory for New Recruits |
|
| Tiered structure | Tier I Account:
|
| Contributions to NPS | Both Employee and the government contribute to the employee's NPS account:
|
| Investment options | Two investment options :
|
| Annuity options | At retirement, government employees can:
|
| Tax Benefits |
|
| Additional tax benefits | Section 80CCD(2) of the IT Act:Â
|
| Portability | Government employees can transfer their NPS account from one sector to another or from one location to another |
New Pension Scheme offers various benefits for retirement, some of which are as follows:
| Features | Details |
| Pension Benefits |
|
| Family Pension |
|
| Commutation of Pension | Commute up to 40% of pension corpus to lump sum payment |
| Service Gratuity |
|
| Retirement Gratuity |
|
| Death Gratuity |
|
| Dearness Relief on Pension |
|
The main difference between the Old Pension Scheme and the New Pension Scheme for central government employees is the way the pension benefits are calculated and administered.Â
Here are some of the key differences between the two schemes:
| Particulars | Old Pension Scheme | New Pension Scheme (NPS) |
| Pension Calculation | Based on the last pay drawn by the employee and the no. of years of service | Based on the accumulated corpus in the employee's NPS account |
| Contributions |
|
Employee Contribution: 10% of (Basic salary + Dearness allowance) towards their NPS account Government Contribution: 14% of (Basic salary + Dearness allowance) to the employee’s NPS account |
| Investment options | The government decided the investments and completely managed the pension fund | Employees have the option to choose b/w two investment options (Active Choice and Auto Choice) based on their risk appetite |
| Tax Benefits | Tax deductions of up to Rs. 1.5 lakhs u/ Sec 80CÂ | Same tax benefits of up to Rs. 1.5 lakhs u/ Sec 80C |
| Additional tax benefits | No additional tax benefits | Additional tax benefits of up to 10% of (basic salary + DA) u/ Section 80CCD(2) of the IT Act, 1961 |
The eligible pensioners to avail of the retirement benefits of the new pension scheme for government employees are as follows:
Central Government Employees
Who joined government service after 01 January 2004
Exclusions:Â
Personnel working in Armed Forces
Old Pension Scheme extended to Central Government Employees (covered under NPS) in the event of their death or discharge due to invalidation/ disability.
The National Pension Scheme (NPS) calculator is a tool that helps individuals estimate the amount of money they will receive as pension after retirement based on their investment in the NPS scheme.
The calculator takes into account various factors such as:
Amount of investment
Rate of return
Age of the investor
However, the NPS calculator provides only an estimate of retirement benefits. The actual returns may vary depending on various factors such as:
Performance of the investment assets
Prevailing market conditions
Age at which you retire
Here are some of the key benefits of the NPS for government employees:
Contributions made by government employees towards their NPS account are eligible for tax benefits under Section 80C and 80CCD(2) of the Income Tax Act, 1961.
Retirement benefits for NPS employees come with a high degree of flexibility and can choose the investment options that best suit their risk appetite and investment goals.
Government employees can continue to make contributions to their NPS account even if they switch jobs or move to a different location.
Government employees can track the performance of their NPS account with regular updates on the contributions made, the corpus accumulated, and the returns earned on the investment.
Upon retirement, government employees can withdraw up to 40% of the accumulated corpus as a lump sum and the remaining 60% to purchase the best annuity scheme. The annuity purchased will provide a regular pension income to the employee.
NPS is a low-cost scheme, as the charges associated with the scheme are low compared to other retirement savings schemes.
The New Pension Scheme (NPS) provides government employees with several retirement benefits, including tax benefits, flexibility, portability, transparency, and low costs. The scheme offers a range of investment options, allowing employees to choose the investment strategy that best suits their needs.Â
With its many benefits, the NPS is a viable retirement savings option for government employees who wish to secure their financial future.
Tax benefits under Section 80C and Section 80CCD(2) of the Income Tax Act
NPS offers a choice of investment options to the employees, including equity, corporate bonds, and government securities
The new pension scheme allows the portability of the NPS account
The NPS is a transparent scheme, with regular updates on contributions, corpus accumulated, and returns earned
Levies lower charges as compared to other savings schemes.
The key differences between the old pension scheme and the new pension scheme are:
Nature of benefit
Source of funding
Risk involved
The old pension system offers a guaranteed benefit and is funded by the employer, while the new pension system offers a market-linked benefit and is funded by the employee and the employer.Â
The new pension system carries some investment risk as the returns are linked to the performance of the investments made, while the old pension system is a risk-free option for retirement savings.
Some of the key rules of the NPS are:
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*All savings are provided by the insurer as per the IRDAI approved insurance
plan.
^The tax benefits under Section 80C allow a deduction of up to ₹1.5 lakhs from the taxable income per year and 10(10D) tax benefits are for investments made up to ₹2.5 Lakhs/ year for policies bought after 1 Feb 2021. Tax benefits and savings are subject to changes in tax laws.
+Returns Since Inception of LIC Growth Fund
¶Long-term capital gains (LTCG) tax (12.5%) is exempted on annual premiums up to 2.5 lacs.
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^^The information relating to mutual funds presented in this article is for educational purpose only and is not meant for sale. Investment is subject to market risks and the risk is borne by the investor. Please consult your financial advisor before planning your investments.
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