Comparison between New Pension Scheme & Old Pension Scheme

New Pension Scheme (Defined Contributory Pension Scheme) PRELIMINARY STUDY REPORT Presented by K.V.RAMESH, SSE/ICF JGS (Finance & Administration) /IRTSA

Pension - Greatly Valued Pension is valuable in the sense that it is secure. Supreme Court held that pension is a valuable right vested in a Govt. servant. Refusal, reduction, forfeiture of pension not allowed unless on extreme conditions. Pension is secured against attachment & seizure.

Defined Benefits Pension & GPF  (prior to 1.1.2004) Pension   Commutation of Pension   Retirement Gratuity   Death Gratuity   Service Gratuity   Leave Encashment   Family pension   Group Insurance

Types of Pension (1) Superannuation calculated as 50% of average emoluments of last 10 months salary drawn subject to the minimum of Rs.3500 and maximum of Rs.45000. (2) Family Pension At the rate of 30% of basic pay subject to the minimum of Rs.3500 and maximum of Rs.27000. (3) Voluntary Retirement (VR ) Maximum of 5 years weightage in the Qualifying Service

COMMUTATION OF PENSION Can commute a lumpsum payment not exceeding 40%. Reduced pension in proportion to the % of commutation and age factor. Commuted portion of pension shall be restored after the completion of 15 years. Lumpsum amount received on commutation of pension is not liable for Income tax. Dearness relief calculated to the original pension not on the reducedpension.

Gratuity Retirement Gratuity: Admissible (along with pension) on retirement after completion of 5 years of qualifying service.  Calculated @ 1/4th of a month’s Basic Pay + DA for each completed six monthly period of qualifying service. Maximum retirement gratuity payable is 16. times of emolument limited to Rs. 10 lakhs.  Death Gratuity: Payable to the nominee in the event of employees death.  Service Gratuity: entitled for service gratuity (and not pension) if total qualifying service is less than 10 years.

New Pension Scheme(Defined Contributory Pension Scheme) Salient Features Operational with effect from 1.1.2004. Implemented by Central Government and 22 states. Existing provision of Defined Benefit Pension & GPF would not be available to new Govt. servants joining service on or after 1.1.2004. Will have tiers – Tier-I & tier-II. CONTRIBUTION TO TIER-I  10% of BP+DA contribution by the Govt. servant every month. Equal matching contribution by the Government. Kept in the non-withdrawable Pension Tier-I account. Tier-II voluntary contribution will be kept in a separate withdrawable account. The scheme is implemented by Central Record keeping Agency & Several Pension Fund mangers. An independent Pension Fund Regulatory and Development Authority (PFRDA) will regulate the pension market.  Permanent Retirement Account Number (PRAN) allotted after 1.4.2008.  Govt. servant can exit at or after 60 years of age.  60% of pension wealth can be withdrawn lumpsum.  40% of pension wealth to be invested in annuity - mandatory – to provide pension for life time for self and dependent. To leave the scheme before 60 years of age 80% of pension wealth mandatory for investment.  Benefit of Invalid pension, Disability pension, Family pension, Extraordinary Family pension are extended.  Retirement Gratuity for discharge from duty due to Disease / Injury or invalidation also extended.

  

Six Pension Fund Managers ICICI Prudential Pension Funds Management Company Limited IDFC Pension Fund Management Company Limited Kotak Mahindra Pension Fund Limited Reliance Capital Pension Fund Limited SBI Pension Funds Private Limited UTI Retirement Solutions Limited

  

Comparison of Earnings of Old Pension Scheme and NPS CIRCUMSTANCES ASSUMED Date of Appointment - 1.1.2006 Entry Grade - GP - 4200, PB-2, 9300 – 34800 VI CPC period - 1.1.2006 to 31.12.2015 VII CPC period - 1.1.2016 to 31.12.2025 (with the multiplication factor of 2.06 + 40% fixation) VIII CPC period - 1.1.2026 to 31.12.2035 (with the multiplication factor of 2.06 + 40% fixation) Dearness Allowance - Jan 2006 to Dec 2011 actual, From Jan 2012 to Dec 2015 assumed increase @ 6% every half year for the periods 1.1.2016 to 31.12.2025 & 1.1.2026 to 31.12.2035. Promotion / MACPS - First promotion/ MACPS during Jan-2016 and second promotion / MACPS during Jan-2026

Inflation proof for new Pension not available (Rs. in thousands)





Inflation proof for new Pension not available (Rs. in thousands)

THE

IMPLICATIONS

ARE 

QUITE DEEP

Right for dignified life stripped

• In a single swoop the idea of pensions being rights of workers, has been thrown into the neo-liberal dustbin.
• Fundamental issue of stripping of employees’ right to a life of dignity
• The return under NPS is market driven.
• There is no guaranteed/defined amount of return.
• The returns generated through investments are accumulated and is not distributed as dividend or bonus

Why Armed Forces kept away

• If the expected return under NPS is much higher than the return under existing old Pension Scheme, why does not the government allow the members of the Armed Forces to exercise this option? Armed force are the most valued functionaries of the nation. That the members of the Armed Forces are being kept under old pension scheme does indicate that there is something shady in the argument that NPS would earn better; at least the government itself is not convinced that NPS would give better benefits to its employees. One can never be sure that the returns from equities would always be better than the guaranteed returns.

Govt arguments not true

• While introducing the NPS, the Government had argued in the same way as one would find in the IMF Report (2001).
• Briefly speaking, the argument is that DBS is unsustainable because thepension expenditure is increasing at a very high rate.
• Thus, over 1993-94 to 2004-05, the pension expenditure of the GOI has increased by 21 per cent; for the state governments, the rate of increase is still higher (27 per cent over the same period).

Is DBS unsustainable in India

• What the Government did not mention is that the government’s pension expenses as a percentage of GDP is quite negligible in India (less than 0.1 per cent).
• In South Korea or in Hongkong it is about 2 per cent.
• In Italy, France and Germany where the coverage under DBS pension is wide, the pension expenses as percentage of GDP is much higher in these countries.
• In Italy it is 14 per cent; in France and Germany the ratio is 12 per cent. In Japan 9 per cent of the GDP is spent on DBS pension.
• One wonders how it becomes unsustainable in India where the expenses on DBS pension is so low.

NPS SHOULD GO

• The argument that DBS would render all governments ‘bankrupt’ thus appears to be untenable.
• Why should the small pensioners who usually do not have savings to tideover the crisis should be driven to uncertain situation?
• Global capital does not have any moral obligation to honour the right of the citizen to live with dignity even in the retired life.

Thank you
M. SHANMUGAM, Central President,
# 4, Sixth Street, TVS Nagar,
Padi, Chennai- 600050.
Email- cpirtsa@yahoo.com
Mob: 09443140817
K.V.RAMESH, Zonal Secretary, IRTSA,
G3-LIKITH HOMES, 3-Lakshmanan Nagar west street,
Peravallur, Chennai-600082
Email: rameshirtsa@yahoo.co.in
(Mob:9003149578, 09444100842

Source: http://www.irtsa.net

via : http://karnmk.blogspot.in/

National Pension Scheme fee hike to make pension fund mgmt sustainable: IDFC

National Pension Scheme fee hike to make pension fund mgmt sustainable: IDFC

IDFC, one of the fund managers of National Pension Scheme (NPS), today said the proposed revision in fund management charges will help sustain the retirement fund industry in the long-run as all players are losing money under the present fee structure.

"The proposal to raise fund management charges in NPS will sustain the pension fund industry in the long-run as all players are losing money with the current charges," IDFC Chief Executive for Pension Funds Vikash Raj told reporters here.

He said as per the revised NPS guidelines, management charges will be revised soon, which is a welcome step.

At present, fund management fee is a dismal 0.0009 per cent per Rs 10 lakh in which all fund managers are losing money.

However, the revised guidelines have a provision for raising the commission with a cap provided by the pension fund regulator, PFRDA.

"If it (the charge) is fixed at around 0.25 per cent, then the business model will be sustainable," Raj said.

Reacting to new norms about appointing any number of fund managers from the existing six, he said this would help in garnering a higher number of subscribers.

Total corpus of NPS, a contribution-based scheme launched in May 2009, is around Rs 18,000 crore, majority of which is contributed by the public sector employees.

"As the number of players (fund managers) increase, this will help in raising the investor base," Raj said.

NPS, among the low-cost pension schemes in the world, has failed to take off among general public and private sector employees due to less awareness about the plan, he said.

"As awareness increases, the NPS is likely to become popular among the private sector employees and general public," he added.

Source: Indian Express

Contribution Cards For CPF Subscribers

There are 11.18 Crore member accounts with Employees’ Provident Fund Organisation (EPFO) as on 07.08.2012. An e-Passbook facility, which can serve as Contribution Card, has been provided to EPFO subscribers. Members can access all the entries in their account with the facility to take a print out of their account statement.

The e-Passbook facility is already implemented in EPFO w.e.f. 20.07.2012. As the facility is being provided electronically, it is free of cost to the EPF subscribers.

The above e-Passbook facility is available for all the EPF members working in both organized as well as unorganized sectors.

There are 11.18 Crore member accounts with Employees’ Provident Fund Organisation (EPFO) as on 07.08.2012. An e-Passbook facility, which can serve as Contribution Card, has been provided to EPFO subscribers. Members can access all the entries in their account with the facility to take a print out of their account statement.

The Union Labour & Employment Minister Shri Mallikarjun Kharge gave this information in a written reply in Lok Sabha today.

Source: PIB

Proposed Amendments in PFRDA bill to make NPS more attractive

The Cabinet is likely to approve three amendments proposed in the Pension Fund Regulatory Development Authority (PFRDA) Bill, the law relate to New Pension Scheme (NPS). Central Government Employees who joined in Government Service on or after 01.01.2004 are under NPS. This pension scheme has also been extended to all Indian Citizens.

The Cabinet will meet to move amendments to the Pension Fund

Regulatory Development Authority (PFRDA) Bill. According to reports, three changes are being made to PFRDA Bill.

•  The first amendment will reportedly allow contributor to withdraw funds from the pension scheme in case of an emergency. The present law does not provide for withdrawing funds for emergency purposes from NPS.
•  Also, the subscriber will be reportedly given a minimal assured return for the investment in his fund. Since NPS is market related there is no minimum return assurance so far.
•  The third amendment reportedly says there will be a 26 per cent cap on the Foreign Direct Investment (FDI) in the scheme. Earlier, the cap was not specified. The BJP has been demanding the FDI cap of 26 per cent to be included in the PFRDA Bill.

The pension bill or the PFRDA Bill suggests changes to how savings of nearly 25 lakh Indians are invested. Currently, these savings are invested in government securities that offer a fixed rate of return. The new bill allows pension funds flexibility on appointing a professional fund management company and lays down roles and responsibilities.

Management of Funds Under NPS

The investment of pension funds of Government employees, who are covered as subscribers to the New Pension System (NPS), was hitherto being made through a pooling arrangement whereby the funds of such employees were credited to a pool account (pending reconciliation of subscribers’ contribution details) from which such funds were allocated to pension fund managers for immediate investment in the best interest of the subscribers. These funds of the Government employees are being managed based on the investment Pattern prescribed by the Government.

The pension funds of the Government employees, who are covered by NPS, are managed by three pension fund managers, namely, SBI Pension Funds (Pvt.) Limited, UTI Retirement Solutions Limited and LIC Pension Fund Limited.


The Pool account is proposed to be discontinued from 1st May, 2012. Thereafter, it would be possible for the individual subscribers to exercise their individual choices regarding investment pattern and the pension fund manager.

NPS is a defined contribution based pension system where the actual returns would be determined by the market based returns.

This information was given by the Minister of State for Finance, Shri Namo Narain Meena in written reply to a question in the Rajya Sabha today.

Source : PIB dtd 27/03/2012