Is NPS better than Old Pension Scheme

| November 14, 2014

Is NPS better than Old Pension Scheme?

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.

Note: Views expressed here belongs to Author, www.govemployees,in has nothing to do with views.

Category: NPS, Pensioners

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