Vol. 3, Issue 2 (2018)
New pension scheme versus old defined pension scheme for Government employees: An analytical overview
Author(s): Dr. Harish Sharma
Abstract: The New Pension Scheme (NPS) is a defined contribution-based pension scheme, launched by the government and effective from April 1, 2009. While the existing pension fund of the government offers assured benefits, NPS has a defined contribution structure, where an individual can decide where his contributed money will be invested. NPS is intended to resemble the 401k plan offered for employees in the US, but not in totality. NPS follows an EET (exempt-exempt-taxable) structure, similar to its global peer, but the withdrawal amount after the age of 60 cant remain invested nor can be withdrawn fully. Another important difference is that premature withdrawal is subject to a few life-changing situations. Lets explore other aspects of this scheme. If the employer is offering NPS, he will be making an equal contribution in the scheme from his side. The structure will be of Tier-1 type where premature withdrawal will not be allowed. You will be liable for additional tax benefit on the employers contribution. An individual can also choose a voluntary Tier-II account having the premature withdrawal facility. The government and employers will make no contribution to this account. The accumulated wealth in this account can be withdrawn anytime without stating any reason.