Pension Budget 2024 expectations: FM may offer guarantee under NPS; central government employees likely to get 50% of last pay drawn as pension

The government plans to provide 50% of the final pay drawn as pension for central government employees enrolled in the National Pension System. This effort addresses their worries about the pension payout, even though the current scheme offers attractive returns for those who remain invested for 25-30 years, especially for those recruited after 2004. This is as per a news report by Sidhartha in Times of India. A committee, led by Finance Secretary T V Somanathan, was formed after an announcement by Finance Minister Nirmala Sitharaman. Although the government has rejected a return to the Old Pension Scheme (OPS), it has left open the option to provide some level of reassurance. This comes amidst the Congress announcing a reversal of a decision made by the Manmohan Singh government.Also read: More tax savings from NPS in Budget 2024? Expect employer’s share to rise to 12%, additional Rs 50,000 NPS deduction in new tax regime

What is Old Pension Scheme (OPS)

For the OPS scheme, government employees can receive half of their last drawn salary as a lifelong pension. This amount is subject to adjustments based on pay commission recommendations. On the other hand, the NPS scheme works differently, as it is a defined contribution plan. Under this scheme, government employees contribute 10% of their basic salary, and the Centre provides a 14% contribution.

NPS: Budget 2024 expectations

The Somanathan committee has examined the international experience and studied the adjustments made by the Andhra Pradesh government. Additionally, extensive calculations have assessed the effects of guaranteeing a certain return. “Although it is possible for the Centre to offer 40-45% guarantee, politically, it does not address the concern of employees who work for 25-30 years. As a result, there is growing ack nowledgement within the govt of offering a 50% guarantee. Which means in case of a shortfall, the govt will fill the gap,” according to the Times of India news report.

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The committee members believe that an annual assessment must be carried out, as opposed to the government pension system, which is unfunded because the Center lacks a retirement fund. The Center will probably establish a fund this time in Budget 2024, similar to companies that provide retirement benefits to their employees.

Officials have stated that individuals who remain employed for 25-30 years are experiencing satisfactory returns that align with the pension payments received by those under the OPS. They have noted that the grievances regarding low payouts primarily come from individuals who have left the scheme after completing 20 years or less.