NPS is far beneficial than Government Pension
NPS is far beneficial than Government Pension – Comparison of New Pension Scheme (National Pension Scheme) and Central Government Pension
The Central Government employees who have joined after 1/1/2004 and are put under National Pension Scheme (NPS) have been demanding abolition of NPS and have been persuading the Central Government to make the government pension scheme applicable to them.
This only exhibits their ignorance of the fact that the New Pension Scheme is highly lucrative and make the government employees who joined after 1/1/2004 far richer than the government employees who enjoy government pension scheme. By doing so they are in the process of ruining the great fortunes that lies in store under New Pension Scheme. Let me compare both the scheme:
Benefits under NPS
Let me take a case of Upper Division Clerk(UDC) who joins government service in 2014 at the age of 25 and renders 35 years of service till attaining 60 years of age. He / She gets 3% annual increment every year and gets one promotion every 10 year under M.A.C.P. Although he / she is likely to get 14 to 20% increase in D.A every year as per Consumer Price Index I just take 12%(assuming 6 + 6%) 2 times D.A in a year
| YEAR | D.A. assumed @ 12% Per annum |
PAY + GRADE PAY with 3% annual increment |
D.A | TOTAL | Total Monthly Subscription (employee and Govt) |
Annual Subscription |
AnnualAppreciationof Investments @ 8.7% Only |
TOTAL PENSION WEALTH |
| 2014 | 107% | 9910 | 10604 | 20514 | 4102 | 49224 | 2320 | 51,544 |
| 2015 | 119% | 10210 | 12150 | 22360 | 4471 | 53652 | 7012 | 1,12,208 |
| 2016 | 131% | 10520 | 13781 | 24301 | 4860 | 58320 | 12511 | 183039 |
| 2017 | 143% | 10840 | 15501 | 26341 | 5268 | 63216 | 18903 | 265158 |
| 2018 | 155% | 11170 | 17314 | 28484 | 5696 | 68352 | 26290 | 359800 |
| 2019 | 167% | 11510 | 19222 | 30732 | 6146 | 73752 | 34779 | 468331 |
| 2020 | 179% | 11860 | 21229 | 33089 | 6618 | 79416 | 44487 | 592234 |
| 2021 | 191% | 12220 | 23340 | 35560 | 7112 | 85344 | 55546 | 733124 |
| 2022 | 203% | 12590 | 25558 | 38148 | 7630 | 91560 | 68097 | 892781 |
| 2023 | 215% | 12970 | 27886 | 40856 | 8172 | 98064 | 82293 | 1073138 |
| 2024* | 227% | 14130 | 32075 | 46205 | 9240 | 110880 | 98589 | 1282607 |
| 2025 | 239% | 14560 | 34798 | 49358 | 9872 | 118464 | 117170 | 1518241 |
| 2026 | 251% | 15000 | 37650 | 52650 | 10530 | 126360 | 138041 | 1782642 |
| 2027 | 263% | 15450 | 40634 | 56084 | 11216 | 134592 | 161433 | 2078667 |
| 2028 | 275% | 15920 | 43780 | 59700 | 11940 | 143280 | 187596 | 2409543 |
| 2029 | 287% | 16400 | 47068 | 63468 | 12694 | 152328 | 216809 | 2778680 |
| 2030 | 299% | 16900 | 50531 | 67431 | 13486 | 161832 | 249371 | 3189883 |
| 2031 | 311% | 17410 | 54145 | 71555 | 14312 | 171744 | 285614 | 3647241 |
| 2032 | 323% | 17940 | 57946 | 75886 | 15178 | 182136 | 325893 | 4155270 |
| 2033 | 335% | 18480 | 61908 | 80388 | 16078 | 192936 | 370601 | 4718807 |
| 2034* | 347% | 21060 | 73078 | 94138 | 18828 | 225936 | 421184 | 5365927 |
| 2035 | 359% | 21700 | 77903 | 99603 | 19920 | 239040 | 478101 | 6083068 |
| 2036 | 371% | 22360 | 82956 | 105316 | 21064 | 252768 | 541139 | 6876975 |
| 2037 | 383% | 23030 | 88205 | 111235 | 22248 | 266976 | 610878 | 7754829 |
| 2038 | 395% | 23730 | 93734 | 117464 | 23492 | 281904 | 687954 | 8724687 |
| 2039 | 407% | 24450 | 99512 | 123962 | 24792 | 297504 | 773068 | 9795259 |
| 2040 | 419% | 25190 | 105546 | 130736 | 26148 | 313776 | 866975 | 10976010 |
| 2041 | 431% | 25950 | 111845 | 137795 | 27560 | 330720 | 970498 | 12277228 |
| 2042 | 443% | 26730 | 118414 | 145144 | 29028 | 348336 | 1084535 | 13710099 |
| 2043 | 455% | 27540 | 125307 | 152847 | 30570 | 366840 | 1210066 | 15287005 |
| 2044* | 467% | 29640 | 138419 | 168059 | 33612 | 403344 | 1348977 | 17039326 |
| 2045 | 479% | 30530 | 146239 | 176769 | 35354 | 424248 | 1501283 | 18940857 |
| 2046 | 491% | 31450 | 154420 | 185870 | 37174 | 446088 | 1668876 | 21055821 |
| 2047 | 503% | 32400 | 162972 | 195372 | 39074 | 468888 | 1853953 | 23378662 |
| 2048 | 515% | 33380 | 171907 | 205287 | 41058 | 492696 | 2057162 | 25928520 |
| 2049 | 527% | 34390 | 181235 | 215625 | 43126 | 517512 | 2280169 | 28726201 |
* MACP / Promotion Years
(A) Therefore, the total pension wealth of a government servant who joined in 2014 and retiring under New Pension Scheme shall at the time of his retirement be Rs. 2,87,26,201/-
(B) 60% of the lump-sum pension wealth which he / she will be getting on retirement:
Rs.1,72,35.720
(C) 40% invested in an annuity scheme which he / she can receive before 70 years:
Rs.1,14,90,481
(D) Earned Leave Encashment: Rs. 215625 x 10 months : Rs. 21,56,250
TOTAL of (A) (B) (C) and (D) will be Rs. 3,08,82,451
Death Gratuity:
Although not entitled for retirement gratuity, but eligible for Death Gratuity If died during the service
Monthly Pension:
At the assumed Interest at the rate of 8.7% per annum on the other 40% of pension wealth of Rs.1,14,90,481 invested in annuity shall fetch
monthly pension of at least : Rs.83,306/ –
Not only this, before he / she attains the age of 70 he / she can withdraw the remaining 40% of his pension wealth of Rs. 1,14,90,481/- which if invested in Fixed Deposit of a nationalised bank can fetch interest and take care of not only of his wife and children but his descendants also for generations to come.
This is just a tip of the iceberg. If we consider the other 4 pay commission benefits that materialize on 1/1/2016, 1/1/2026, 1/1/2036 and 1/1/2046 which a NPS pensioner who joins as UDC shall be getting before his retirement in 2049,his total pension wealth will be undoubtedly double the above amount which comes to more than Rs.5 crores. While a person who joins as U.D.C. gets this much, one will be rocked out of stupor to know what a Group A officer who renders 35 years of service may get – undoubtedly his total pension wealth will be more than Rs.10 crores.
Benefits under Central Government Pension Scheme
Now let us see what will be the retirement benefits of the above person if he / she is put in government pension scheme:
1.Gratuity for 16.5 months :
Rs.2,15,625 x 16.5 months = Rs.35,57,812/- Restricted to Rs.10,00,000
2. Earned Leave Encashment:
Rs. 215625 x 10 months : Rs.21,56,250
3. Pension Commutation:
Rs.17195 x 40% = Rs.6878 x 12 x 8.194 years Rs 6,76,300
Total Benefits under Central Government Pension Scheme: Rs.38,32,550
4. GPF Balance:
As it is a general tendency of the government servants to withdraw from GPF frequently, there will be very little left at the time of retirement
5. Monthly pension
i) Rs.34390 / 2 = Rs.17195 (basic pension being 50% of pay and grade pay Less 40% of basic pension towards commutation (Rs 6878) which will be restored after 15 years
Balance basic pension is Rs. 10317
ii) DA @ 527% of basic pension of Rs.17195 = Rs. 90617 (subject to increase in DA every 6 months based on consumer price index)
Total pension is Rs.1,00,934 per month.
After the death of government servant say after 67 years, spouse can take only 60% of the basic pension i.e.Rs.17195 x 60% = Rs.10317 plus D.A.at the prevailing rates. After spouse’s death children are unlikely to draw the pension as they would have already crossed the age limit. Thus, unlike the dependents of NPS pensioners, there will be nothing left for financial security of the dependents of the government pensioners .
Thus it is unwise on the part of government servants who have joined after 1/1/2004 to demand for abolition of NPS scheme and grant of government pension.
Mr.M.Dorai
Deputy Director
ESIC Model Hospital,
Bangalore (Ministry of Labour, Government of India) is the author of this Article.
source-http://www.gconnect.in/nps-2/nps-cg-employees/nps-far-beneficial-government-pension.html
Devadas says
It is said that Salary of a UDC in 2014 is Rs 20,514, and in 2049 it would be Rs 2,15,625. It is only a presumption of Don Quixot but what is in reality ? ? ? Then the pension would be Rs.1,00,934 per month. Our country is not like the oil rich country like Brunei. Our natural resources are already at the verge of nullification. The Probability and possibility of raising revenue will come to a standstill in the near future. Will the economy like India (with ever increasing population), can offer to pay such huge sums with 50% employee/employer contribution ? to less than 1 crore retired and serving employees. What about the remaining population of 150 Crores in 2049. I don’t even dream that NPS would be successful scheme for a country like INDIA. Bureaucrats/ Employees/employers please think it over.
Navin Kumar says
NPS scheme may be removed please as it is not better than CCS pension rule. If it is more beneficial then it should have also been implemented among all the employees of India (including employees of defence & others who is yet exumpted from this) whether they employed before 01.01.2004 or after 01.01.2004.
gurbiner says
if the new NPS system is so much beneficial, then why its not being implemented on defence services, judges, MPs, MLAs, MINISTERS etc
Gaurav Puraiya says
I will only say that if this NPS is that much better as compared to conventional pension scheme, then why defence service are not under NPS yet???
Don’t they deserve this benefit…
Truth is that NPS is very bad as compared to conventional pension scheme. This report is just to fool people so that they wont intensify their demand removing NPS..
Abhinav Singh says
Its a gimmick to prove NPS is good . How u can forget the pay commission benefits u get in pension in every 10 yrs. But no such benefit to be given to NPS person once he retires.
Tripta Garg says
Is there any provision for taking loan before retirement from NPS account? An employee will be generally free of all his financial commitments at the time of retirement so the saved money is often desired at the time of child’s education and marriage.
JAINENDER PRASAD says
Excellent article by the author The article is a great revelation not known to anyone so far.
From the comparison of NPS benefits and old pension scheme benefits on the basis of VI CPC pay scale, it is clear that there is a huge difference in the retirement benefit of a government pensioner and the NPS pensioner. While the new pension wealth is Rs.3,08,82,451, the retirement benefit under government pension scheme is only Rs.38,32,550 as per the present rule of retirement benefit calculation for government pensioners which is correctly shown in the article. Even if ceiling limit on gratuity is removed it will come to Rs.63,90,362 only.
The pension and the bank interest amount on retirement benefit of government pensioner will be much lower than the pension and bank interest amount on retirement benefits of NPS pensioner.
Where is Rs. 3,08,82,451/- and where is Rs.38,32,550/-? It is always better to have more money at ones disposal than to depend on monthly pension which ends after the death. I fully agree with the article.
R.R. KHAN says
The present value of 3,08,82,451, under NPS, discounted at 8.7% for 35 years will be Rs 14,86,126.00 today. Will a person retiring today without any pension and only around 15 lakhs in hand at retirement survive his lifetime???
Governments all over the world, in order to avoid pension liability, are moving towards DEFINED CONTRIBUTION(DC) based pension systems from the earlier DEFINED BENEFIT pension system. NPS is DC based system.
On the other hand, under the DEFINED BENEFIT pension system, there is no contribution by the employees.The existing pensioners get Dearness Relief periodically for the 50% of the last pay drawn which is their pension. Pay Commissions also pass on benefit to the pensioners. . The entire liability is borne by the Govt.
It is widely accepted and a universal truth that DEFINED BENEFIT system will always be beneficial for the employees. NPS will be beneficial under the following circumstances.
1. Govt increases its contribution from 10% to a higher percentage. The greater the contribution, the greater the corpus…
2. A very important factor will be COMPOUNDING rate .ie the rate at which the money compounds or multiplies. If there is some fund manager who can beat the market repeatedly, and generate astonishing returns then the corpus size is likely to increase.
3. Equities, in general and in the long run has been the best asset class. However , the funds of Govt employees are not fully deployed in equities to generate higher returns.
So a whole host of issues are involved . The future is highly indeterminate. Hence it is not easy to predict what is going to happen 35 years hence. Therefore,it is downright wrong to make such claims that NPS will be benefical. If in doubt , the author may consult any finance professor….
Rbalasubramanian says
the assumed calculation is correct if guarantee by central government is given and also share value differs time to time
JOSSY K CHIRAPPURAM says
Your calculation is not correct. For pension commutation in the old pension scheme you have taken as pension Rs17195 only. But the actual pension is Rs215625/2=107812.
Ashok says
Sir,
In case of Central Government Pension, an employee doesn’t have to deposit any money with the govt. every month.
If this money is invested in a financial instrument, it will yield good return to a govt. employee after many years.
This point should also be taken note of while making comparison between Central Govt. Pension and New Pension Scheme.
Regards
Ashok