Main Article - Feb, 2006
NEW PENSION SCHEME
Ch. Srinivasa Rao, Under Secretary, CSIR, New Delhi
Introduction
Govt. of India have introduced a new "Defined Contribution Pension Scheme" in place of existing "Defined Benefit Pension System" which is popularly known as "Pension Scheme" on 23rd August, 2003. The New Pension Scheme is applicable to all new entrants to Central Govt. service, except Armed Forces joining Govt. service on or after 1-1-2004. With the introduction of New Pension Scheme, the existing provisions of Pension and GPF would not be available to new Govt. servants.
CSR have duly adopted the "New Pension Scheme" of GoI. The operational part of the Scheme has not been discussed in the present write up.
Scope & Nature
In the "New Pension Scheme", the monthly contribution would be 10 per cent of the salary and DA to be paid by the employee and matched by the Central Government. The Scheme will work on defined contribution basis and will have two tiers: Tier-I and Tier-II.
Tier-I: The contributions and investment returns would be deposited in a non-withdrawable pension Tier-I Account. The individuals can exit from Tier-I on attaining the age of 60 years. It would be mandatory for the incumbent to invest 40% of "Pension-wealth" to purchase an Annuity from an IRDA-regulated Life Insurance Company. The Annuity would provide pension for the lifetime of the employee, dependent parents and spouse at the time of retirement. The individual would receive a lumpsum of the remaining pension-wealth which can be utilized in any manner.
The individuals would have the flexibility to leave the pension system prior to reaching the age of 60. However, in this case, the mandatory annuitization would be 80% (instead of 40%) of the pension-wealth.
Tier-II: A voluntary Tier-II account for each individual has been provided for with a provision to withdraw money in part or full out of the Tier-II account at any time. However, such withdrawal would be without any special tax provisions.
The Tier II will not be made operative during the interim period; hence, presently no recoveries are being made from the salaries of the employees on this account.
Salient features
The salient features of the Scheme are:
i) Recovery towards Tier-I contribution will start from the salary of the month following the month in which the Govt. servant joins the service.
ii) Now there is no deduction component such as GPF contribution.
iii) Immediately on joining the service, the Govt. servant is required to provide his particulars in a prescribed form.
iv) The DDO concerned will be responsible for the collection and maintenance of such information and submission of the same to Pay & Accounts Officer (PAO) by 7th of the following month.
v) On receipt of information, the PAO will allot a unique 16-digit Permanent Pension Account Number (PPAN) as detailed hereunder and maintain an Index Register for this purpose:
Calendar year - Civil Ministry - PAO Code - Serial Number
2 - 0 - 0 - 4
1 - 0 - 4 - 0
8 - 6 - 6 - 0
0 - 0 - 0 - 1
vi) The PAO will return a copy of the statement duly indicating therein the Account Numbers allotted to each individual by 10th instant. The DDO will intimate the A/c Number to the individual concerned and also note the same in the Pay Bill Register.
vii) The particulars of the Govt. servants will be consolidated by the PAO, and sent to the Principal Accounts Office by 12th of every month who will consolidate the particulars in prescribed proforma and forward the same to the Central Pay & Accounts Office (CPAO) by 15th instant. The CPAO will maintain a database.
viii) The DDO and CDDO shall also prepare a separate bill for drawal of matching contributions to be paid by the Govt. and creditable to Pension Account.
ix) No withdrawal of any amount will be allowed during the interim arrangement.
x) Provisions regarding terminal payments in the event of untimely death of an employee or in the event of his leaving the Govt. service during the interim period, interest payable on Tier-I balance are yet to be notified.
xi) Separate Account for Tier-II will be maintained.
Status of new recruits
It would be mandatory for all new recruits to the Central Govt. service from 1-1-2004. In cases where the offer of appointments have been issued before 1-1-2004 and the incumbent joined duty on or after 1-1-2004, each individual should be specifically informed about the fact that they will be governed under the New Pension Scheme instead of CCS (Pension) Rules, GPF Rules, etc. as might have been reflected in the offer of appointment issued to them earlier.
Status of staff absorbed
Persons joining CSIR or any other Autonomous Body on or after 1-1-2004 from other Departments/Autonomous Bodies/PSUs/Central Universities having Pension Scheme on GoI pattern will continue to be governed by existing Pension Scheme, i.e. CCS (Pension) Rules, 1972.
Persons joining CSIR from other Central Govt. Departments/Autonomous Bodies/ State Govt. Departments on or after 1-1-2004 on immediate absorption basis or on foreign service terms, and later seek absorption and governed by CPF or any other system but not Pension Scheme on GoI pattern in their parent department will also be governed by New Pension Scheme.
In cases where Govt. employees apply for posts in the same or other departments and on selection they are asked to render technical resignation, the past service is counted towards Pension under CCS (Pension) Rules, 1972, since the Govt. servant said to have originally joined Govt. service prior to 1-1-2004.
Infrastructure
Central Record Keeping & Agency: The Scheme will be operated by a "Central Record Keeping & Agency" (CRA) infrastructure, several Pension Fund Managers (PFMs). The PFMs shall to offer three categories of schemes, viz. Option A, B and C based on the ratio of investment in fixed income instruments and equities. Till these Officials are appointed, the accumulated balances under each individual account and the matching contributions made by the Govt. will be kept in the Public Account of India. The CRA and PFMs would give out easily understood information about past performance, so that the individual will be able to make informed choices as to which scheme to choose.
Pending formation of a regular CRA, Central Pension Accounting Office will function as the CRA. After the appointment of CRA and Fund Managers, detailed instructions on transfer of balances to CRA will be issued.
Pension Fund Regulatory & Development Authority: An independent "Pension Fund Regulatory & Development Authority" (PFRDA) will regulate and develop its own funding stream based on user charges. Such additional functions as may be considered necessary to the Interim PFRDA may be assigned to enable it to effectively regulate, promote and ensure the orderly growth of the pension market.
Till PFRDA is set up, an Interim PFRDA will be appointed through an Executive Order.
Contribution of Govt. servant
Since the contribution is to be worked out at 10% of Pay+DA+DP, the total DA is to be taken into account for working out the contributions. Since the Non-Practising Allowance shall also count as 'pay' for all service benefits, this will be taken into account. Since a part of the DA has been treated as DP, this should also be reckoned for the purpose of contributions along with Basic Pay, deduction of contribution towards Tier-I should also be effected from arrears of DA.
The contribution of 10% gets revised whenever there is any change in these components. If there is any increase or decrease in emoluments of a Govt. employee during the middle of the month, the change in the rate of contribution (both Govt. employee and Govt.) will be given effect only from the first of the following month.
The contribution has to be rounded-off to the nearest rupee.
Govt. contribution
At present, the Govt. matching contributions are booked under the Minor Head ‘502-Exopenditure Awaiting Transfer (EAT)’ to other Heads/Departments which is a transitory head. Before the accounts are closed, the balances under this Head should be transferred to the Final Head. No balance should remain under this Head. After the Accounting Heads are finalized, the amount of Govt. contribution should be debited to a functional Major Head for which there should be provision of funds.
No matching contribution will be made by the Govt. to Tier-II.
The contribution of 10% should be rounded off to the nearest rupee.
Rate of interest
Accumulations at the credit of the subscribers to the New Pension System shall carry interest at the rate of 8% per annum for the period 1-1-2004 to 31-3-2005 and 2004-2005. The PAO shall calculate the interest.
On transfer of service
Whenever any Govt. servant is transferred from one Office to another either within the same Accounting Circle or to another Accounting Circle, balances will not be transferred by the PAO to the Accounts Office. However, the DDO should clearly indicate the Unique Account Number, the month up to which the Govt. servant’s contribution and Govt.’s contribution have been transferred to the Pension Fund in the Last Pay Certificate of the individual.
On transfer during the month
As inthe case of other recoveries, the deduction of contributions towards the New Pension Scheme for the full month (both individual and Govt.) will be made by the Office which will draw salary for the maximum period.
Purchase of pension-wealth
It is mandatory on the part of the retiring Govt. servant to purchase 40% of the pension wealth after 60 years. This provision has been made with an intention that the retired Govt. employee should get regular monthly income during his retired life. Exit from Tier-I can only take place only when an individual leaves the Govt. service.
Leave encashment
The benefit of encashment of leave salary is not a part of the retirement benefits. Hence, under the New Pension Scheme, it is payable to Govt. servants on retirement; or to their families on account of death of Govt. servant.
Status of casual workers
As the New Pension Scheme is based on defined contributions, the length of qualifying service for the purpose of retirement benefits has lost its relevance. Accordingly, no credit of casual service shall be available to the casual workers on their regularization on or after 1-1-2004.
As there is no provision of GPF in the New Pension Scheme, it will not serve any useful purpose to continue deductions towards GPF from the existing casual employees. Therefore, no further deductions towards GPF shall be made w.e.f. 1-1-2004 and the amount lying in their GPF account including deductions made after 1-1-2004 shall be paid to them. However, interest on the GPF accumulations of the Casual Workers bestowed with temporary status can be allowed up to 30-4-2004.
Miscellaneous issues
The following issues were referred to the Ministry of Finance, GoI for consideration and decision:
1. Benefits in the event of death while in service
2. Retirement gratuity
3. Recovery of contributions during long leave
4. Exemption of contribution towards Tier-I from Income tax
The issue of contribution under Tier-I after the age of 60 years has been referred to the Department of Economic Affairs. Similarly, the applicability of Scheme for the officials initially appointed on daily wages and later on conferred “temporary status” and contributing towards GPF and whose services are regularized on or after 1-1-2004 has been referred to the Department of Personnel & Training.
References
1. CSIR Lr. No. 17/68/2001-E.II dated 23-12-2003.
2. CSIR Lr. No. 17(68)/2003-E.II dt. 10-6-2004
3. GI MPPG&P OM No. 49014/1/2004-Estt.(C) dt. 23-7-2004; CSIR Endt. No. 17(28)/ 2001-E.II dt. 16-8-2004
4. GI DoPT O.M. No.49014/1/2004-Estt.(C) dt. 26-4-2004 & 23-7-2004;Swamysnews, Sept. 2004, 26-7
5. GI MOF CGA F.No.1(7)(2)/2003/TA/245 dt.20-4-2004; Swamysnews, Dec. 2004, 22-26
6. Swamy's Compilation of New Pension Scheme for Central Government Servants (2005), M/S. Swamy Publishers (P) Limited, Chennai
7. GI MF Resoln. No. F5(1)-PD/2003 dt. 21-4-2005;Swamysnews, June, 2005,11-12
8. GoI Dept. of Posts Lr.No.45-6/2005-S-PB-I dt.2-9-2005;Swamysnews, Nov.2005,17-18
Ch. Srinivasa Rao, Under Secretary, CSIR, New Delhi
Introduction
Govt. of India have introduced a new "Defined Contribution Pension Scheme" in place of existing "Defined Benefit Pension System" which is popularly known as "Pension Scheme" on 23rd August, 2003. The New Pension Scheme is applicable to all new entrants to Central Govt. service, except Armed Forces joining Govt. service on or after 1-1-2004. With the introduction of New Pension Scheme, the existing provisions of Pension and GPF would not be available to new Govt. servants.
CSR have duly adopted the "New Pension Scheme" of GoI. The operational part of the Scheme has not been discussed in the present write up.
Scope & Nature
In the "New Pension Scheme", the monthly contribution would be 10 per cent of the salary and DA to be paid by the employee and matched by the Central Government. The Scheme will work on defined contribution basis and will have two tiers: Tier-I and Tier-II.
Tier-I: The contributions and investment returns would be deposited in a non-withdrawable pension Tier-I Account. The individuals can exit from Tier-I on attaining the age of 60 years. It would be mandatory for the incumbent to invest 40% of "Pension-wealth" to purchase an Annuity from an IRDA-regulated Life Insurance Company. The Annuity would provide pension for the lifetime of the employee, dependent parents and spouse at the time of retirement. The individual would receive a lumpsum of the remaining pension-wealth which can be utilized in any manner.
The individuals would have the flexibility to leave the pension system prior to reaching the age of 60. However, in this case, the mandatory annuitization would be 80% (instead of 40%) of the pension-wealth.
Tier-II: A voluntary Tier-II account for each individual has been provided for with a provision to withdraw money in part or full out of the Tier-II account at any time. However, such withdrawal would be without any special tax provisions.
The Tier II will not be made operative during the interim period; hence, presently no recoveries are being made from the salaries of the employees on this account.
Salient features
The salient features of the Scheme are:
i) Recovery towards Tier-I contribution will start from the salary of the month following the month in which the Govt. servant joins the service.
ii) Now there is no deduction component such as GPF contribution.
iii) Immediately on joining the service, the Govt. servant is required to provide his particulars in a prescribed form.
iv) The DDO concerned will be responsible for the collection and maintenance of such information and submission of the same to Pay & Accounts Officer (PAO) by 7th of the following month.
v) On receipt of information, the PAO will allot a unique 16-digit Permanent Pension Account Number (PPAN) as detailed hereunder and maintain an Index Register for this purpose:
Calendar year - Civil Ministry - PAO Code - Serial Number
2 - 0 - 0 - 4
1 - 0 - 4 - 0
8 - 6 - 6 - 0
0 - 0 - 0 - 1
vi) The PAO will return a copy of the statement duly indicating therein the Account Numbers allotted to each individual by 10th instant. The DDO will intimate the A/c Number to the individual concerned and also note the same in the Pay Bill Register.
vii) The particulars of the Govt. servants will be consolidated by the PAO, and sent to the Principal Accounts Office by 12th of every month who will consolidate the particulars in prescribed proforma and forward the same to the Central Pay & Accounts Office (CPAO) by 15th instant. The CPAO will maintain a database.
viii) The DDO and CDDO shall also prepare a separate bill for drawal of matching contributions to be paid by the Govt. and creditable to Pension Account.
ix) No withdrawal of any amount will be allowed during the interim arrangement.
x) Provisions regarding terminal payments in the event of untimely death of an employee or in the event of his leaving the Govt. service during the interim period, interest payable on Tier-I balance are yet to be notified.
xi) Separate Account for Tier-II will be maintained.
Status of new recruits
It would be mandatory for all new recruits to the Central Govt. service from 1-1-2004. In cases where the offer of appointments have been issued before 1-1-2004 and the incumbent joined duty on or after 1-1-2004, each individual should be specifically informed about the fact that they will be governed under the New Pension Scheme instead of CCS (Pension) Rules, GPF Rules, etc. as might have been reflected in the offer of appointment issued to them earlier.
Status of staff absorbed
Persons joining CSIR or any other Autonomous Body on or after 1-1-2004 from other Departments/Autonomous Bodies/PSUs/Central Universities having Pension Scheme on GoI pattern will continue to be governed by existing Pension Scheme, i.e. CCS (Pension) Rules, 1972.
Persons joining CSIR from other Central Govt. Departments/Autonomous Bodies/ State Govt. Departments on or after 1-1-2004 on immediate absorption basis or on foreign service terms, and later seek absorption and governed by CPF or any other system but not Pension Scheme on GoI pattern in their parent department will also be governed by New Pension Scheme.
In cases where Govt. employees apply for posts in the same or other departments and on selection they are asked to render technical resignation, the past service is counted towards Pension under CCS (Pension) Rules, 1972, since the Govt. servant said to have originally joined Govt. service prior to 1-1-2004.
Infrastructure
Central Record Keeping & Agency: The Scheme will be operated by a "Central Record Keeping & Agency" (CRA) infrastructure, several Pension Fund Managers (PFMs). The PFMs shall to offer three categories of schemes, viz. Option A, B and C based on the ratio of investment in fixed income instruments and equities. Till these Officials are appointed, the accumulated balances under each individual account and the matching contributions made by the Govt. will be kept in the Public Account of India. The CRA and PFMs would give out easily understood information about past performance, so that the individual will be able to make informed choices as to which scheme to choose.
Pending formation of a regular CRA, Central Pension Accounting Office will function as the CRA. After the appointment of CRA and Fund Managers, detailed instructions on transfer of balances to CRA will be issued.
Pension Fund Regulatory & Development Authority: An independent "Pension Fund Regulatory & Development Authority" (PFRDA) will regulate and develop its own funding stream based on user charges. Such additional functions as may be considered necessary to the Interim PFRDA may be assigned to enable it to effectively regulate, promote and ensure the orderly growth of the pension market.
Till PFRDA is set up, an Interim PFRDA will be appointed through an Executive Order.
Contribution of Govt. servant
Since the contribution is to be worked out at 10% of Pay+DA+DP, the total DA is to be taken into account for working out the contributions. Since the Non-Practising Allowance shall also count as 'pay' for all service benefits, this will be taken into account. Since a part of the DA has been treated as DP, this should also be reckoned for the purpose of contributions along with Basic Pay, deduction of contribution towards Tier-I should also be effected from arrears of DA.
The contribution of 10% gets revised whenever there is any change in these components. If there is any increase or decrease in emoluments of a Govt. employee during the middle of the month, the change in the rate of contribution (both Govt. employee and Govt.) will be given effect only from the first of the following month.
The contribution has to be rounded-off to the nearest rupee.
Govt. contribution
At present, the Govt. matching contributions are booked under the Minor Head ‘502-Exopenditure Awaiting Transfer (EAT)’ to other Heads/Departments which is a transitory head. Before the accounts are closed, the balances under this Head should be transferred to the Final Head. No balance should remain under this Head. After the Accounting Heads are finalized, the amount of Govt. contribution should be debited to a functional Major Head for which there should be provision of funds.
No matching contribution will be made by the Govt. to Tier-II.
The contribution of 10% should be rounded off to the nearest rupee.
Rate of interest
Accumulations at the credit of the subscribers to the New Pension System shall carry interest at the rate of 8% per annum for the period 1-1-2004 to 31-3-2005 and 2004-2005. The PAO shall calculate the interest.
On transfer of service
Whenever any Govt. servant is transferred from one Office to another either within the same Accounting Circle or to another Accounting Circle, balances will not be transferred by the PAO to the Accounts Office. However, the DDO should clearly indicate the Unique Account Number, the month up to which the Govt. servant’s contribution and Govt.’s contribution have been transferred to the Pension Fund in the Last Pay Certificate of the individual.
On transfer during the month
As inthe case of other recoveries, the deduction of contributions towards the New Pension Scheme for the full month (both individual and Govt.) will be made by the Office which will draw salary for the maximum period.
Purchase of pension-wealth
It is mandatory on the part of the retiring Govt. servant to purchase 40% of the pension wealth after 60 years. This provision has been made with an intention that the retired Govt. employee should get regular monthly income during his retired life. Exit from Tier-I can only take place only when an individual leaves the Govt. service.
Leave encashment
The benefit of encashment of leave salary is not a part of the retirement benefits. Hence, under the New Pension Scheme, it is payable to Govt. servants on retirement; or to their families on account of death of Govt. servant.
Status of casual workers
As the New Pension Scheme is based on defined contributions, the length of qualifying service for the purpose of retirement benefits has lost its relevance. Accordingly, no credit of casual service shall be available to the casual workers on their regularization on or after 1-1-2004.
As there is no provision of GPF in the New Pension Scheme, it will not serve any useful purpose to continue deductions towards GPF from the existing casual employees. Therefore, no further deductions towards GPF shall be made w.e.f. 1-1-2004 and the amount lying in their GPF account including deductions made after 1-1-2004 shall be paid to them. However, interest on the GPF accumulations of the Casual Workers bestowed with temporary status can be allowed up to 30-4-2004.
Miscellaneous issues
The following issues were referred to the Ministry of Finance, GoI for consideration and decision:
1. Benefits in the event of death while in service
2. Retirement gratuity
3. Recovery of contributions during long leave
4. Exemption of contribution towards Tier-I from Income tax
The issue of contribution under Tier-I after the age of 60 years has been referred to the Department of Economic Affairs. Similarly, the applicability of Scheme for the officials initially appointed on daily wages and later on conferred “temporary status” and contributing towards GPF and whose services are regularized on or after 1-1-2004 has been referred to the Department of Personnel & Training.
References
1. CSIR Lr. No. 17/68/2001-E.II dated 23-12-2003.
2. CSIR Lr. No. 17(68)/2003-E.II dt. 10-6-2004
3. GI MPPG&P OM No. 49014/1/2004-Estt.(C) dt. 23-7-2004; CSIR Endt. No. 17(28)/ 2001-E.II dt. 16-8-2004
4. GI DoPT O.M. No.49014/1/2004-Estt.(C) dt. 26-4-2004 & 23-7-2004;Swamysnews, Sept. 2004, 26-7
5. GI MOF CGA F.No.1(7)(2)/2003/TA/245 dt.20-4-2004; Swamysnews, Dec. 2004, 22-26
6. Swamy's Compilation of New Pension Scheme for Central Government Servants (2005), M/S. Swamy Publishers (P) Limited, Chennai
7. GI MF Resoln. No. F5(1)-PD/2003 dt. 21-4-2005;Swamysnews, June, 2005,11-12
8. GoI Dept. of Posts Lr.No.45-6/2005-S-PB-I dt.2-9-2005;Swamysnews, Nov.2005,17-18
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