The fluctuating share market is not only making the serial investors worried, but also a lot of central government employees as a large part of their National Pension System (NPS) retirement corpus is invested in market-linked assets. With many NPS pensioners set to retire from 2033 onwards, some employee bodies are now demanding assured pensions in NPS under the 8th Pay Commission.
In a memorandum submitted to the 8th CPC on Sunday, the All India NPS Employees Federation (AINPSEF) has proposed a minimum assured pension equal to 50% of the last-drawn salary plus dearness allowance (DA).
As per the proposal, AINPSEF wants the government to keep its contribution to the employee’s NPS corpus to itself and provide an assured minimum pension to the retiring employees.
AINPSEF says that due to long-term market fluctuations, many employees have seen moderate growth in their NPS corpus, which is failing to keep pace with inflation and may impact their pension amount post retirement.
At present, a central government employee contributes 10% of their basic pay and dearness allowance (DA) to their NPS Tier-I account, while the government contributes 14% of the employee’s basic pay and DA to the employee’s NPS account.
Government employees can select different investment schemes such as the default option, Scheme G, LC 25, LC50, LC75 and Balance Life Cycle (BLC) option, where their allocation of government securities and equity vary. NPS mutual funds track the Nifty 50 index, and their returns may be negative if the market falls badly.
AINPSEF’s proposed NPS pension model for 8th Pay Commission
Giving the example of a Level 7 employee with 32 years and 8 months of service and with a corpus of Rs 3.13 crore, AINPSEF says that the employee’s contribution to his corpus will be Rs 1.30 crore, while the government’s contribution will be Rs 1.82 crore. The employee’s estimated salary at the time of retirement will be Rs 3.32 lakh and the estimated DA will be 30% (as per the pay commission rates at that time).
AINPSEF says that the government can keep its contribution of Rs 1.82 crore to itself and provide 50% assured pension + DR to retiring employees and around 30% family pension (equivalent to 60% of pension) after the death of a pensioner, if required.
According to AINPSEF, the current NPS framework lacks any cyclic financial recovery mechanism for government finances and effectively operates as a long-term one-way fiscal outflow.
It argues that if the government keeps its part of the contribution, a cyclical financial recovery will make assured pensions sustainable for central government employees.
Possible benefits under AINPSEF’s proposed NPS model
Under its proposed model, AINPSEF says the government’s contribution to the employee’s corpus will remain within the government system. A long-term pension liability will gradually decrease after the pensioner’s death. It will create a financially sustainable and socially secure pension structure and can become a practical middle path between OPS and NPS.
However, the key question is what’s wrong with the current NPS model?.
Why does AINPSEF want the NPS model to be changed?
AINPSEF argues that the current NPS model is reasonably effective mainly when regular service exceeds approximately 30–35 years, but employees with low-level pay and less than 20 years of service, get a meagre pension at retirement.
The employee body says that teachers and Railway employees, work-charge staff, contractual employees and daily wage workers, often spend a substantial part of their working life in non-regular service before it gets regularised.
"Consequently, the pension amount becomes extremely low. In many cases, pension ranges merely between Rs 300–Rs 3,000 per month," says AINPSEF in its memorandum.
Inadequate pension after voluntary and premature retirement, says AINPSEF
AINPSEF also says for low pay-level employees, in cases of voluntary retirement, premature retirement, compulsory retirement, pension becomes extremely inadequate and socially insufficient.
“Employees belonging to lower pay levels (Level-1 to Level-5) generally accumulate comparatively smaller pension corpus. This creates serious insecurity among lower and middle-income employees,” says AINPSEF in its memorandum.
AINPSEF’s proposed model for NPS pension (as per its memorandum)
| Particulars | Details |
| Entry in Service | Sep-08 |
| Entry Level Grade Pay | ₹4600 / Level-7 |
| Present Basic Pay | ₹ 78,800 |
| Current NPS Corpus | ₹51 lakh (Approx.) |
| Annual Contribution Growth | 10% |
| Retirement | Jun-43 |
| Total Service Length | 32 Years 8 Months |
| Corpus at Retirement | ₹ 3,13,34,000 |
| NPS Corpus Projection Basis | NPS Trust Calculator @ Annual Return 9.0% |
| Expected Basic Salary at Retirement | ₹ 3,32,000 |
| Expected DA at Retirement | 30% |
➢ DA Merger in 2026 and 2036 Pay Commission and 15% additional growth.
Estimated Pension Equivalent (OPS)- 50% Pension Equivalent = ₹1,66,000.00
DA @30% on pension = ₹49,800.00
Total Pension = ₹2,15,800 in June 2043
Comparative corpus distribution according to existing ratio of 10%, 14% and 18.5% (Proposed in UPS)
| Contribution Type | Amount |
| Employee Share (10%) | ₹ 1,30,55,833 |
| Government Share (14%), NPS | ₹ 1,82,78,167 |
| Government Share (18.5%), UPS | ₹ 2,41,53,291 |
Sustainable pension model
Financial observation @ Rs 2.41 crore.
➢ If invested through secure Fixed Deposit @9% annual return: Approximate lifelong monthly pension income: Rs 1.81 Lakh per month (41.94% in place of 50%)
Proposed model
Government can take this accumulated corpus back to its treasury and may provide 50% assured pension + DA to retiring employees and around 30% family pension (equivalent to 60% of pension) after death of pensioner, if required.
