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Contributory Pension Scheme

Contributory Pension Scheme
Highlights

Telangana Chief Minister has agreed to meet employee unions about their demand to rescind Contributory Pension Scheme (CPS). Under the old scheme,...

Telangana Chief Minister has agreed to meet employee unions about their demand to rescind Contributory Pension Scheme (CPS). Under the old scheme, employees used to get pension as an additional post-retirement benefit.

But, the new scheme envisages pension based on contributions from employees and the income accrued in a fund set up for the purpose. The Centre has given freedom to the states on the choice of new pension scheme for their employees.

The National Pension System will have two tiers - Tier-I and II. Contribution to Tier-I is mandatory for all government servants joining government service on or after 1-1-2004 (except the armed forces in the first stage), whereas Tier-II will be optional and at the discretion of government servants.

In Tier-I, a government servant will have to make a contribution of 10% of his basic pay plus DA. The government will make an equal matching contribution. However, there will be no contribution from the government in respect of individuals who are not government employees.

Tier-I contributions (and the investment returns) will be kept in a limited partial withdrawable Pension Tier-I Account. Tier-II contributions will be kept in a separate account that will be withdrawable at the option of the government servant. Government will not make any contribution to tier-II account.

There will be several Pension Fund Managers (PFMs) to offer three categories of schemes to government servants, viz., options A, B and C based on the ratio of investment in fixed income instruments and equities. They will provide information about past performance, so that the individual would be able to make informed choices about which scheme to choose.

A government servant can exit at or after the age of 60 years from the Tier-I of the Scheme. At exit, it would be mandatory for him to invest 40 per cent of pension wealth to purchase an annuity (from an IRDA-regulated Life Insurance Company) which will provide for annuity for the lifetime of the employee and his dependent parents/spouse.

He would receive a lumpsum of the remaining pension wealth which he would be free to utilise in any manner. In the case of government servants who leave the scheme before attaining the age of 60, the mandatory annuitisation would be 80% of the pension wealth. (http://pensionersportal.gov.in)

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