The annuity plan meant to generate specified retirement benefits to Central government staff under the Unified Pension Scheme (UPS) will be structured in such a way that the capital is not returned to the heirs after the death of the dependent of the pensioner. The part of its contribution – 8.5% of basic pay +DA - parked in a common pool fund to generate the returns required for providing guaranteed (50% of pay) pension along with dearness relief, is expected to come to the aid of the government to mitigate the high bills that might arise from rising longevity of lives. No capital is built under the old pension scheme (OPS) which doesn't involve any defined contribution or investment plan, but is provided for via budgetary revenue expenditure. As for the national pension system, which is based on the concept of defined contribution by both the employers and the employees, the high-yield schemes don't require return of capital after the death of pensioner's dependent. According to the extant NPS norms, a maximum of 60% of the accumulated NPS corpus from contributions during a person’s working years is allowed to be withdrawn tax-free at the time of retirement. The subscriber has to invest a minimum of 40% of the corpus in annuities for a regular pension. In the current NPS architecture, subscribers have choice of what annuity to purchase. She may purchase units with return of purchase price (capital), in which case she may get lower returns. If she purchases units without the option of return of purchase price, annuity/pension could be higher. Also ReadCredit Card Billing: THIS bank reduces card bill payment due date to 15 days – Check details In UPS, however, there won't such options. “Once the dependent is no more, annuity will cease, no further payment or capital return is required as it is a joint life annuity without return of purchase price,” an official explained. Under UPS, the employee contribution shall remain unchanged at 10% (of basic pay + DA). The government’s contribution will increase from the present 14% (under the market-linked national pension system) to 18.5%. Under the proposed UPS, the pension corpus will be divided into two: individual pension funds to which the employee’s and matching government contribution of 10% each will be credited; and a separate pool corpus created out of additional government contribution (8.5% of basic and DA of all employees). The employee can exercise an investment choice for the individual pension corpus alone. Government employees looking for higher pension will have the option to get their pension monies invested in high-risk instruments for better returns. However, they will have to forego the UPS guarantees, such as monthly pension payouts of 50% of final service year's monthly pay, with full inflation adjustment. Of course, such risk-prone subscribers can potentially get less than “50% pension” if their investment returns turn out to be low. But, they can get more than 50% if returns are very high. Guaranteed pension will only be for those who opt for the “default investment option” prescribed. Such subscribers could get pension above 50% if returns are as such, but won’t receive any top-up from pool fund. If the return under default option are lower than 50% of pay, pool fund would bridge the gap to meet the guaranteed pension requirement. So, one may opt for either the guarantee or the risk option in pursuit of higher rewards. The subscribers who choose high-risk investment option will also get the benefit of the pool corpus at par with a similarly placed pensioner under the default (guarantee) option.
