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New Pension Scheme : Some clarifications..!



ADMINISTRATIVE STRUCTURE
The administrative setup of NPS subscription is planned as:

Employee>Paying officer>DDO>PAO>PrAO>PFRDA/CRA/NSDL>Trustee Bank>Pension Fund managers

IS THE NEW PENSION SCHEME GOOD?

If calculated,we can see that the new pension scheme employees are actually getting 10 % less pay than the old pension scheme staff.There is a wide spread rumour that the new pension scheme offers amount in Lumpsum amount and therefore it is better than the old pension scheme.How much truth is there in it?Let's see...

Please note:The below calculations are based on pay of a Group C cadre of scale 5200-20300(2500 Grade Pay) and if the government puts the whole investment in fixed instruments of 8% annual interest.The percentage of investments in equity which is speculated cannot be calculated.It purely depends on how efficient the appointed fund manager is.The principal amount of contribution without interest otherwise is:

Based on 10 years-210000(employee contribution)+210000(Govt contribution)=Rs420000
Based on 20 years-540000(employee contribution)+540000(Govt contribution)=Rs1080000

Therefore the amount of pension you get is purely based on the scheme you chose.As per now,there is no scheme which allows to put 100% in fixed instruments and the figures are just to compare.

Old and New Pension scheme comparison after completing 10 years(before 60 years)

CPF Calculation

Contribution Amt. year Sub.+Bal.+8%Interest Total Amt.
1300 i st year 15600 + 1248 16848
1400 ii year 16800 + 16848 + 2691 36339
1500 iii year 18000 + 36339 + 4347 58686
1600 iv year 19200 + 58686 + 6230 84116
1700 v year 20400 + 84116 + 8361 112877
1800 vi st year 21600 + 112877 + 10758 145235
1900 vii year 22800 + 145235 + 13442 181477
2000 viii year 24000 + 181477 + 16438 221915
2100 ix year 25200 + 221915 + 19769 266884
2200 x year 26400 + 266884 + 23462 316746


If equal government contribution also provides interest, Total tier-1 amount is 316746x2=Rs633492

80% in pension fund=506794

Amt you get at the time of retiring=Rs126698+Rs 3378 monthly pension (8% interest of Rs506794 in a pension fund)+no gratuity

For old pension scheme after 10 years

GPF =316746
Gratuity=110000[1/4*(last bp+da)*(10*2)]
Total amount= Rs426746+Monthly pension Rs 3500+da (minimum pension )

Thus Comparison of old and new pension scheme gives over Rupees 3 lakh less benefits in lump sum amount and lesser monthly pension for new employees after ten years of service for below 60 years retirement.

Old and New Pension scheme comparison after completing 10 years(reaching 60 years age)

If equal government contribution also provides interest, Total tier-1 amount is 316746x2=Rs633492

40% in pension fund=253396 Amt you get at the time of retiring=Rs380096+Rs 1689 monthly pension (8% interest of Rs253396 in a pension fund)+no gratuity

For old pension scheme after 10 years

GPF =316746
Gratuity=110000[1/4*(last bp+da)*(10*2)]
Total amount=Rs426746+Monthly pension Rs 3500+da (minimum pension )

Thus Comparison of old and new pension scheme gives over Rupees 50000 less benefits in lump sum amount and Rs 1800 lesser monthly pension for new employees after ten years of service for age 60 retirement.

Old and New Pension scheme comparison after completing 20 years(before 60 years)

CPF Calculation

Contribution Amt. year Sub.+Bal.+8%Interest Total Amt.
1300 i st year 15600 + 1248 16848
1400 ii year 16800 + 16848 + 2691 36339
1500 iii year 18000 + 36339 + 4347 58686
1600 iv year 19200 + 58686 + 6230 84116
1700 v year 20400 + 84116 + 8361 112877
1800 vi st year 21600 + 112877 + 10758 145235
1900 vii year 22800 + 145235 + 13442 181477
2000 viii year 24000 + 181477 + 16438 221915
2100 ix year 25200 + 221915 + 19769 266884
2200 x year 26400 + 266884 + 23462 316746
2300 xi year 27600 + 316746 + 27547 371893
2400 xii year 28800 + 371893 + 32055 432748
2500 xiii year 30000 + 432748 + 37019 499767
2600 xiv year 31200 + 499767 + 42477 573444
2700 xv year 32400 + 573444 + 48467 654311
2800 xvi st year 33600 + 654311 + 55032 742943
2900 xvii year 34800 + 742943 + 62219 839962
3000 xviii year 36000 + 839962 + 70076 946038
3100 xix year 37200 + 946038 + 78659 1061897
3200 xx year 38400 + 1061897 + 88023 1188320


If equal government contribution also provides interest, Total Tier-1 amount is 1188320x2=Rs2376640

80% in an annuity pension fund scheme=1901312

Amt you get at the time of retiring=Rs475328+Rs 12675 monthly pension (8% interest of Rs506794 in a pension fund)+no gratuity

For old pension scheme after 20 years

GPF =1188320
Gratuity= 320000 i.e. [1/4*(last bp+da)*(no of every completed six month of service)]
Total amount= Rs1508320+Monthly pension approax Rs 16000+da (half of last bp+da )

Thus Comparison of old and new pension scheme gives over Rupees 10 lakh less benefits in lump sum amount and Rs 4000 lesser monthly pension for new employees after twenty years of service for below age 60 retirement.

Old and New Pension scheme comparison after completing 20 years(reaching 60 years age)

If equal government contribution also provides interest, Total Tier-1 amount is 1188320x2=Rs2376640

40% in an annuity pension fund scheme=950656

Amt you get at the time of retiring=Rs1425984+Rs 6300 fixed monthly pension (8% interest of Rs950656 in a pension fund)+no gratuity

For old pension scheme after 20 years

GPF =1188320
Gratuity= 320000 i.e. [1/4*(last bp+da)*(no of every completed six month of service)]
Total amount=Rs1508320+Monthly pension approax Rs 16000+da (half of last bp+da )

Thus Comparison of old and new pension scheme gives over Rupees 1 lakh less benefits in lump sum amount and Rs 9700 lesser monthly pension for new employees after twenty years of service for age 60 retirement.

And some final questions:

1.The Government notifications only explains about giving a fixed pension with this amount through a annuity and not about giving this huge amount of money back to the employee at anytime.So what happens to the huge principal amount(19 lakh in the case of a VRS) when the pension ceases after the pensioner and his dependent's death?

2.Why doesn't the government give the whole money of contribution as on EPF for the employee at the time of retirement to invest in bank atleast and enjoy interest or his choice of investment?Why is the government putting restrictions of 40% and 80% to be only invested in annuity pension scheme without giving any other choice to employee's hard earned money?

3.Isn't it a violation of Payment of Gratuity Act-1972 when the employer,who is the Government of India,has decided to give no gratuity to new employees without passing the new bill?

4.While EPF provides loan upto 36 months of wage,there is no scope for any loan in CPF,the money is blocked until the employee retires.What should a new employee do in case of an urgent requirement for building a house or marriage of children?
Source: newpension

Comments

Anonymous said…
Dear blog owner thanks for your important clarifications reg NPS. kindly enlighten us by doing comparison of the ppf investment and the investment done in NPS as applicable to the govt. employees.
Anonymous said…
Dear Mr. blogowner, thanks for giving such detailed analysis. The actual loss In NPS is though more than that. Those in Nps are getting lesser salary than old pension scheme beneficiaries and the pension they will be getting is without any contribution whatsoever, apart from gratuity, benefit of GPF etc. The NPS is no profit scheme for employees and govt. is relieved of its social and ethical responsibility of protecting those retiring in NPS. What if after all the investments govt.says it has lost the money in its investments.
Anonymous said…
For everythung you want to know about the new pension scheme,visit newpension.blogspot.com
SAKIR said…
I CAME UNDER NPS. I RECENTLY RESIGN FROM MY DOP JOB. AS PER PFRDA AND MINISTY OF FINANCE, DEPARTMENT OF EXPENDITURE O.M. NO. 1 (2)/EV/2008 DATED 19TH JANUARY,2009, IN CASE OF AN INDIVIDUAL WHO LEAVE THE PENSION SYSTEM PRIOR TO AGE 60 YEARS, THE MANDATORY ANNUITIZATION WOULD BE 80% OF THE PENSION WEALTH. THE INDIVIDUAL WOULD RECEIVE A LUMP SUM OF THE REMAINING PENSION WEALTH.

2. BUT MY PAO REFUSED TO GIVE THE SAME BE GIVING REASON THAT THERE IS NO DEPARTMENTAL ORDER HAS BEEN RECEIVED.

3. SO I WANT TO KNOW THAT IT IS NECCESARY FOR DEPARTMENTAL ORDER AS MINISTY OF FINANCE AGREED TO PAY THE SAME.

4. PLEASE PROVIDE GUIDANCE TO RECEIVE MY ELIGIBLE PENSION WELATH.
Anonymous said…
I am working on a state government funded autonomous Institute from the last 8 yrs. Now it is taken over by Department of Science and Technology, Govt. of India on 9th March 2009. Should I also come under New Pension Scheme
Anonymous said…
I was posted in autonomous body under NPS. But now i left that service and Join in central government service under NPS. What my contribution deducted by previous employer will be given back to me. if yes please send me what is the procedure of it.
Anonymous said…
The tire-II of New Pension scheme is also very harmful, as I had deposited 40000 rupees last year now its value reduced to 3599. Fund managers are very poor to manage the funds and It is just like Unit Linked Plan. I advise to all citizen of India to do not join New Pension scheme for there well being.

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