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  • National Pension Scheme Recommendations in Seventh Pay Commission

    National Pension Scheme Recommendations in Seventh Pay Commission

    The Seventh Central Pay Commission recommendations on the NPS seek further investments and additional transparency with regards to the scheme. The NPS has been active for more than ten years and there have been a few grievances against the scheme such as follow:

    • Allegations from staff association and larger federations citing discrimination between the different groups of government employees.
    • Allegations of uncertainty with regards to the actual value of individuals’ future pension.
    • Complaints regarding the decrease in effective salary of employees who contribute 10% of their salary towards a pension fund.
    • Ineffective grievance redressal facility and non-existent consultation with stakeholders leading to insecurity between stakeholders including Group A Central Government officers and staff in addition to All India Service Officers.
    • The NPS does not ensure Family Pension following the employee’s death. Also, in case of an early death of the employee, the family is bound to suffer due to inadequate annuity from the contribution.
    • No recourse to general provident fund for NPS subscribers’ savings. 10% of their salary, which accounts for their personal savings are viewed as part of a bigger corpus. The best approach recommended is to view only the returns earned on government’s contribution as the effective sum available to buy annuities.
    • Unlike under GPF, refundable advances cannot be taken under NPS regardless of whether or not it is to meet compulsory social expenditure, thus leading employees to incur larger debt since they will have to seek financial help elsewhere.
    • While accumulations and contributions in NPS are exempt, tax will be applicable to lump sum withdrawals from the scheme. A service tax liability will also be applicable to any sum used to buy annuity.

    Analysis of Grievances by the Commission

    NPC has analysed the aforementioned concerns of the stakeholders and met with Chairman, representatives of DOPT (Department of Personnel and Training), DPPW (Department of Pensions and Pensioners Welfare), DFS (Department of Financial Services, DoE (Department of Expenditure), and PFRDA.

    With regards to the pension’s future value under NPS, the Commission has said that it depends upon a blend of the following factors:

    • Performance of the invested fund
    • Cost of financial intermediation
    • Period of contribution
    • Contribution rates
    • Growth of the annuity market
    • The fund manager’s performance

    The Commission has been working on finding solutions for all grievances. Since many individuals and associations presented complaints regarding the inadequate information provided by the NPS, the Commission revealed that efforts are now focussed on capturing subscribers’ mobile numbers and email addresses to facilitate seamless communication. The communication also recommends stakeholders must consult with each other on a periodical basis.

    The Commission also revealed that the NPS will not be owned by any department of the Indian Government, recommending the formation of a committee that includes the Department of Financial Services’ Secretary, the Department of Pension and Pensioners Welfare’s Secretary, and the Department of Administrative Reforms and Public Grievances’ Secretary to review the progress made in addressing grievances related to the NPS.

    So far as tax treatment is concerned, the Commission said that tax neutrality must be ensured across all avenues to enable long-term savings for post-retirement incomes, thereby ensuring that no employee covered by the National Pension Scheme is at a disadvantage. Withdrawal under the NPS is recommended to be tax-free so that the scheme is at par with other pension schemes. It also recommends that when an NPS subscriber buys annuity, they must be exempt from paying service tax. In case of death of an employee, the Commission recommends the provision of additional relief before their exit from NPS.

    The Commission continues to look into the grievances with a view to finding the right solutions in the near future.

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