Contributory Pension Scheme, a way to acquire more funding for government employees

As per Pension Regulatory and Development Authority bill (PFRDA) the New Pension Scheme was started by the Central Government from 1-1-2004 and by the A.P State Government from 1-9-2004 and it is called as CPS (Contributory Pension Scheme).  

What is the amount of contribution?

CPS contribution is not cumbersome.

Employee contribution: – 10% of Basic Pay and Dearness Allowance (DA)
State Government:- the same amount of Contribution made by the employee will be adjusted to this fund.

Interest: – The government has been giving 8% of interest as per GO. Ms.No.226 Fin Dept Dated: 29-09-2011.

Till the regular Central Record Keeping Agency and Pension Fund Managers are appointed and the accumulated balances under each individual account are transferred to them, such amounts representing the contributions made by the Government servants and the matching contribution made by the Government will be kept in the Public Account of India. This will be purely a temporary arrangement as announced by the Government.

Structure (CPS)

According to New Pension Scheme (NPS), each subscriber would be allotted a unique 16 digit Permanent Retirement Account Number (PRAN). This number would be portable. The records of transactions and investor would be maintained by Central Record Keeping Agency (CRA). At present, NSDL is the CRA and in future the number of CRA would be increased. The subscriber has an option to invest with seven Pension Fund Manager (PFM). He also has the option to choose any one or multiple PFM to manage his contribution.

These PFM will have 3 Kind of funds categorized as-

i)   E for Equity fund,

ii)  G for fund investing in Government Securities and

iii) C for Fixed income securities other than Government Securities.

The participating entities (PFMs and CRA) would give out easily understood information about past performance, so that the individual would be able to make informed choices about which scheme to choose.

The New Pension Scheme works on defined contribution basis and will have two tiers:

Tire-I: The Tire-I account is mandatory for all Government servants joining Government service on or after 1-1-2004 (except the armed forces in the first stage). It is non –withdrawable till retirement on in the case of death of the subscriber.

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 pension for the lifetime of the employee and his dependent parents/spouse.  He would receive a lump-sum of the remaining pension wealth which he would be free to utilize in any manner. In the case of Government servants who leave the Scheme before attaining the age of 60, the mandatory annuitization would be 80% of the pension wealth. Exit from Tier-I can only take place when an individual leaves Government service.

Tire-II: The tire-II accounts available only for existing subscriber of Tire-I account. It is optional and at the discretion of Government servants. The money contributed into this account can be freely withdrawn when the subscriber wishes by maintaining minimum balance that needs to be maintained at the end of the financial year. Government will not make any contribution to Tier-II account.

1. Those who appointed in the job after 1-9-2004 are must join in the  New Pension Scheme.
2. 10% of basic pay and DA is treated as contributory pension and rounded to nearest rupee.
3. The deduction of 10% contribution from salary of an employee is purely responsible of Drawing and Disbursing Officer.
4. Drawing Officer should annexure the schedule to the salary bill which is submitted to the treasury.
5. The number which is allotted by the CRA should be entered in the SR of the individual.
6. Concerned DTOs would give the annual slips of CPS.
7. The employees, who are eligible to this scheme, should not apply for ZPPF/GPF.

Employee gets transferred? Thinking which office will make deduction of contribution?

As in the case of other recoveries, the recovery of contributions towards New Pension Scheme for the full month (both individual and government) will be made by the office who will draw salary for the maximum period.

Whether a government servant who was already in service prior to 1.1.2004, if appointed in a different post under the Government of India, will be governed by the CCS (Pension) Rules or NPS?

In cases where Government servants apply for posts in the same or other departments and on selection they are asked to render technical resignation, the past services are counted towards pension under CCS (Pension) Rules, 1972. Since the Government servant had originally joined government service prior to 1-1-2004, he should be covered under the CCS (Pension) Rules, 1972.

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