With some states announcing the resumption of the old pension scheme (OPS) for their employees and abandoning the National Pension System (NPS), the Center is under increasing pressure to make APS more attractive. In such a situation, the central government can give investment options to the employees in more profitable schemes.
Sources familiar with the matter said that the government is also considering allowing employees to invest more than 40 per cent of the NPS amount in systematic withdrawal schemes (SWP) and inflation-based products to boost their pension income. Under NPS, 60 per cent of the accumulated amount from contributions during the working years of an individual is allowed to be withdrawn at the time of retirement. Such withdrawal is also tax free. The remaining 40 per cent is invested in an annuity, which, according to one estimate, can provide a pension equivalent to about 35 per cent of the final salary.
Under OPS, government employees used to get 50 per cent of the final salary as pension. If 60 per cent of the contribution, which roughly matches the central/state government contribution, is annuated, then the pension in NPS can be close to 45 per cent of the final salary.
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The government concerned can bridge the gap of five per cent by contributing a little more to the NPS. An official source said that it is being seen as a better option rather than bringing back the unstable OPS model. Employees will also have the option to withdraw the corpus entirely from their own contribution at the time of exit.