- The New Pension Scheme works on defined
contribution basis and will have two tiers – Tier-I and II. Contribution to Tier-I is mandatory for
all Government servants joining Government service on or after 1-1-2004
(except the armed forces in the first stage), whereas Tier-II will be
optional and at the discretion of Government servants.
- In Tier-I, a Government servant will have to
make a contribution of 10% of his basic pay plus DA, which will be
deducted from his salary bill every month by the PAO concerned. The Government will make an equal
matching contribution. However,
there will be no contribution from the Government in respect of individuals
who are not Government employees.
- Tier-I contributions (and the investment
returns) will be kept in a non-withdrawable Pension Tier-I Account. Tier-II contributions will be kept in a
separate account that will be withdrawable at the option of the Government
servant. Government will not make
any contribution to Tier-II account.
- The existing provisions of Defined Benefit
Pension and GPF would not be available to
the new recruits in the central Government service, i.e. to the
Government servants joining
Government service on or
after 1-1-2004.
- In order to implement the Scheme, there will
be a Central Record Keeping Agency (CRA) and several Pension Fund Managers (PFM) to offer three
categories of Schemes to Government servants, viz., options A,B and C
based on the ratio of investment in fixed income instruments and equities.
The participating entities (PFMs and CRA) would give out easily understood
information about past performance, so that the individual would be able
to make informed choices about which scheme to choose.
- An
independent Pension Fund Regulatory and Development Authority (PFRDA) will
regulate and develop the pension market.
- As an interim arrangement, till such time the
Statutory PFRDA is set up, an interim PFRDA has been appointed by issuing
an executive order by M/o Finance (DEA).
- Till the regular Central Record Keeping Agency
and Pension Fund Managers are appointed and the accumulated balances under
each individual account are transferred to them, such amounts representing
the contributions made by the Government servants and the matching
contribution made by the Government will be kept in the Public Account of
India. This will be purely a
temporary arrangement as announced by the Government.
- Tier-II will not be made operative during the
interim period.
- A Government servant can exit at or after the
age of 60 years from the Tier-I of the Scheme. At exit, it would be mandatory for him to invest 40 per cent
of pension wealth to purchase an annuity (from an IRDA-regulated Life
Insurance Company) which will provide for pension for the lifetime of the
employee and his dependent parents/spouse. He would receive a lump-sum of the remaining pension wealth
which he would be free to utilize in any manner. In the case of Government servants who leave the Scheme
before attaining the age of 60, the mandatory annuitization would be 80%
of the pension wealth.
1. Government
of India Gazette Notification
F. No. 5/7/2003-ECB&PR
dated 22nd December, 2003.
2. Click
here for FAQs about the New Pension Scheme
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