Saturday, September 7, 2013


At last National Pension System (popularly called New Pension Scheme) bill is passed in both the houses of Parliament with the support of ruling party Congress and main Opposition party B.J.P.

Only Left parties, Trinamool congress, Samajvadi party and DMK opposed to it ( as per news agencies)

In 2004 the scheme was introduced by an administrative note and was made applicable to employees recruited in Central Government jobs. 
Some 26 State Governments also implemented this scheme for their employees from various dates. Still there are states, which didn’t implement this scheme.

In Banks the scheme was introduced to employees recruited from 01.04.2010.
(At least employees recruited from 2004 to 2010 are spared) 

I tried to differentiate the  new and old schemes with available information.

Readers may bring to my notice if any information is wrong.

Old Pension Scheme
National Pension System
10% of Basic Pay by Employee to P.F. a/c.
Pension will be paid by employer.
10% of B.P+D.A by Employee
and Employer.
Take home pay will be reduced.

Contribution by Empl. Will be with Dept/Bank/EPF.
Both Employee &Employer
 Contribution will be with Fund Managers.
Both the amounts are at risk.
Charges will be deducted from contribution by POP,CRA,TRUSTEE BANK,CUSTODIAN,
Will be charged for each and every transaction and for annual maintenance of a/c, securities.
Accumulation of wealth will be reduced
Empl. may raise loan on security of P.F balance, for various needs at any time and repay.
No Loan facility.
Only withdrawal upto 25% is
Allowed, (details to be announced)which will reduce capital.
Empl. has to go for outside borrowing.
Can withdraw up to 75% on non refundable basis for ward’s marriage or to construct house after 25 yrs of service.
Can’t  withdraw up to 60 years of age.
If want withdraw (in case of VRS,etc.,) 80% of accumulated wealth will be used for pension/annuity. Only 20% will be given in cash.
Empl. has to go for outside borrowing
Easily interact with his own employer /H.O
Has to interact through computer/Internet with NSDL/PFRDA/FUND MANAGER.
Difficult to analyze & choose Fund Manager as well as Type of scheme to invest.
Ordinary employees, especially peons, sweepers, drivers etc., can’t understand the system and transact on their own.
Tax treatment
Employee’s contribution to P.F. a/c is under 80C.
P.F. accumulation, Pension, Commutation are fully exempted from Income Tax
Employers contribution is added to Income of the employee, but can be taken as investment apart from 1,00,000 limit under 80CCD(2).
On retirement 60% will be paid in cash and is taxable.
Tax amount will be huge.
Other 40% will utilised for Pension and is tax free.
It is EEE in old scheme.( i.e exempt, exempt, exempt from
 I. T).
In New Scheme it is EET
(i.e, exempt, exempt, taxed)
Empl. Contribution with 8.5% interest and Pension related to Basic Pay with D.A is assured for life.
Both the contributions are invested in Shares/
Debentures/ Govt. Bond
No Guarantee on  return.
Returns are not assured.
Example: UTI Nifty Index Fund growth rate is 10.19% after 17 yrs. ( as on 06.09.13)
UTI Energy Fund growth rate is
(-)8.63% i.e 10000 becomes 5662 in 6 years.
Which way empl. fund will go?
For Family
On the death of an empl., Family Pension is given to spouse throughout his/her life.
On the death of Empl. Wealth accumulated till date is given to the spouse, however small be it.. There ends all. No support for the spouse thereafter.
If an Empl. dies after 10 to 15 years his accumulated wealth will be meager. With this the spouse has to invest prudently , safe guard the money from his family members and lead the life till the end. Is it possible? 

1 comment:

Anonymous said...

I dont think that NPS is prudent scheme introduced by Govt.
The only benefit is contribution is higher as a part of Employer...