NPS : Andhra Pradesh to launch scheme providing 50% of last-drawn salary as pension

NPS : Andhra Pradesh to launch scheme providing 50% of last-drawn salary as pension

According to the cabinet note circulated among the employees, under the GPS, the pensioners will now receive 50% of their last drawn salary as pension, instead of 20.3% of their basic salary under the CPS. The GPS is similar to the old pension scheme (OPS), under which the employees get 50% of the last drawn salary as pension.

The cabinet has also decided to grant two installments of dearness allowance (DA) to the pensioners, at par with the working employees. The pensioners who fall under the OPS and have been getting enhanced DA, whenever the government revises it will be eligible for this.

This is a conscious effort to protect pensioners’ financial well-being by considering the impact of inflation on their livelihoods, the cabinet note said.

The CPS, also known as New Pension Scheme (NPS), was introduced with effect from April 1, 2004, and is applicable for all the state government employees who have been recruited on or after September 1, 2004.

Under the CPS, the employees contribute 10% of their basic salary, while the employers contribute up to 14%, during their tenure. A part of the pension amount collected is then invested in market-linked instruments.

After retirement, an employee can withdraw a part of the pension amount in a lump sum. As per the rule, 60% of the corpus on maturity is tax-free, while the remaining 40% is taxable and must be invested in annuities for a regular income or pension. Investment in CPS up to ₹1.50 lakh is tax-deductible under Section 80C of the Income Tax Act, 1961.

According to the cabinet note, since the CPS is a market-linked pension scheme, the pensioner is uncertain about his pension annuity. Further, this annuity is not adjusted with the market fluctuations. “It leaves the pensioner at the mercy of the market, without any certainty about his or her pension,” it said.

Since the interest rates, globally, have been on a declining trend, it will reduce the corpus growth of pension contributions and hence, lower the pension annuity pay-outs. “The government estimates that a new employee will struggle to get even 20% of his/her basic pay as pension at retirement,” the note said.

Considering such drawbacks, the state government, out of other options, has decided to introduce the GPS, after an elaborate discussions with the employees’ unions.

Initially, the government proposed to pay a guaranteed pension of 33% of the last drawn basic pay, without any deduction. It proposed that if an employee contributes 10% of his salary every month, the state government will add another 10% to it, and the employee would receive 33% of his last drawn basic pay as a guaranteed pension every month after retirement.

Under the second option, if an employee contributes 14% of his salary, the government will add another 14% to it and the employee will receive 40% of his last drawn basic pay as pension.

“We rejected both these options; and finally, the cabinet has come out with a midway solution – offering 50% of the last drawn salary as pension,” the state government employees’ association leader Bopparaju Venkateshwarlu said.

The state finance minister Buggana Rajendranath Reddy said the GPS would offer a guaranteed fixed pension at 50% of last drawn basic pay, without any market-linked uncertainty. “In order to account for inflation, the GPS will contain an inflation adjusted Dearness Relief [DR]. This will protect the pensioner’s salary at the date of retirement in real terms,” he said.

For example, a pensioner retiring with a basic pay of ₹20,000 will get a pension of ₹10,000 (at 50% of basic pay) that will increase every year at the rate of ₹500 for a DR of 5%, the minister said.

While the employees’ unions, on the other hand, are happy, but not fully satisfied with the GPS model. “The GPS is nearly 80% closer to our demand for restoration of the OPS. But the contribution from the employees’ side is still there. Unlike in the OPS, where the employees did not have to contribute any money, in the GPS, they still have to contribute 10% of their basic salary to the pension fund,” Venkateshwarlu said.