National Pension Scheme revamped, Government contribution increased by 4%

The Central Government announced a hike for its employees, who have been in service since January, 2004, under the National Pension Scheme (NPS). The revised Scheme will translate into significant gains for the staff who have been working for 14 years or less.

As per the existing NPS, the employees as well as the Government contribute an equal share to the corpus, which is 10 per cent of their basic salary. Once the revision comes into effect, the Government will contribute 14 per cent of the basic salary, while the employees will continue to contribute 10 per cent.

Also, unlike in the past, the employees’ contribution will now be eligible for tax exemption along with other contributions up to a limit of Rs 1.5 lakh annually, under Section 80C.

Yet another benefit is that, employees who have put in up to 14 years of service, will now be allowed to withdraw 60 per cent of the accumulated corpus, while the balance 40 per cent will be converted to equity. With these changes, the fund accumulated for the employees by the time they retire will be a rather sizeable amount, which they can think of investing in property or to fulfill other needs.

That is not all, while employees could only invest 15 per cent of the funds in equity earlier, with the revamped scheme they will now be able to invest in other options also, without any ceiling. And the best part is, if an employee manages to leave the accumulated amount untouched till retirement, the entire fund will be converted to equity, which means the monthly pension will be over 50 per cent of the last basic salary.

However, some amendments will have to be made in the Finance Bill to implement this move. Therefore, these benefits will come into effect only in April next year.