Union Budget 2024: Key Takeaways on Pension System Review In Nirmala Sitharaman’s Budget Speech

The committee to review the pension system has made considerable progress in its work, Finance Minister Nirmala Sitharaman said today in her Budget speech.

“I am happy that the Staff Side of the National Council of the Joint Consultative Machinery for Central Government Employees has taken a constructive approach. A solution will be evolved which addresses the relevant issues while maintaining fiscal prudence to protect the common citizens,” she said today, without giving a definitive timeline when the committee would make its submission.

Last year, the finance ministry formed a committee, headed by finance secretary TV Somanathan, to evaluate the pension scheme for government employees and suggest necessary changes, taking into account the current framework and structure of the National Pension System (NPS).

It is important to note that many opposition-ruled states are moving back to Old Pension Scheme, or are mulling to, facing demands from government employees and other pressure groups.

So far, Punjab, Rajasthan, Himachal Pradesh, and Jharkhand, among others, went back to the Old Pension Scheme, quashing the new scheme.

Under the old pension scheme, a government employee is entitled to a monthly pension after retirement. The monthly pension is typically half of the last drawn salary of the person.

Under the new pension scheme, employees contribute a portion of their salaries to the pension fund. Based on that, they are entitled to a one-time lump sum amount on superannuation.

The old pension scheme was discontinued in December 2003, and the new pension scheme came into effect on April 1, 2004.

Restoration of the Old Pension Scheme (OPS) by some states may temporarily save cash flows for the state governments but obviously it postpones the problem to a future date and makes the situation somewhat unsustainable or unstable, Chief Economic Advisor V Anantha Nageswaran had said in January 2023.

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In August last year, the central government said it had no proposal to tweak the current pension system. Minister of State for Finance Pankaj Chaudhary had informed Parliament in a written reply to a question.

A plan called NPS Vatsalya was also announced today. It is a scheme for contribution by parents and guardians for
minors. “On attaining the age of majority, the plan can be converted seamlessly into a normal NPS account,” Sitharaman said.

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