All Fresh recruits to Central government service, except armed forces, will have a a new system of contributory pension
. The Union
Cabinet approved, in principle, the new system of pension on Saturday aimed at curbing its mounting pension bill that consumed over 12 per cent of its tax revenue last year.
The Cabinet also cleared the setting up of an interim pension fund regulatory
and development authority to take the preparatory steps for the operation of the new system. Officials said the new system, that offers a basket of three choices, will also be made available, on a voluntary basis, to all employers for their employees, as well as to the state governments. The existing Central government employees will continue to enjoy the present pension benefit.
The new system will be mandatory for new entrants and replace the existing pension provisions. The existing provisions of government provident fund (GPF) will also be withdrawn. The monthly contribution will be 10 per cent of the salary and DA by the employee, with matching contribution by the government. The pension contributions and accumulation will be accorded tax preference up to a certain limit.
Officials said the new system of pension seeks to strengthen the social security while reducing the government pension bill which has been growing at a compound annual rate of 21 per cent and is rendering government finances unsustainable. At present, only 11 per cent of India's working people have the benefit of pension. The new system has the potential of getting pension cover for more people in government, private and self-employed categories, officials said.
The new contributory pension system will use the existing network of bank branches and post offices to collect contributions and interact with participants. It will have a Central record keeping and accounting infrastructure.
There will be a number of pension fund managers, who will offer three types of schemes. Under Option A, 60 per cent of the assets will be held in government securities, 30 per cent in investment grade corporate bonds and 10 per cent in equity. Under Option B, the asset allocation will be 40 per cent, 40 per cent and 20 per cent, respectively. Under Option C, 50 per cent of the assets will be held in equity and the balance 50 per cent will be split between government securities and corporate bonds.
The individual will be free to allocate his money across any of these choices. Through this, the individual would be able to build up pension wealth. The employee can normally exit at or after the age of 60 years. At exit, the individual would be mandatorily required to invest 40 per cent of the pension wealth to purchase an annuity from a life insurance company
.
It is expected that contributions of 10 per cent of the salary and a matching contribution by the government can achieve a replacement rate of 56 per cent of last emoluments for Group A employees, around 58 per cent for Group B employees, around 59 per cent for Group C employees and 68 per cent for Group D staff.
source:http://timesofindia.indiatimes.com
. The Union
Cabinet approved, in principle, the new system of pension on Saturday aimed at curbing its mounting pension bill that consumed over 12 per cent of its tax revenue last year.
The Cabinet also cleared the setting up of an interim pension fund regulatory
and development authority to take the preparatory steps for the operation of the new system. Officials said the new system, that offers a basket of three choices, will also be made available, on a voluntary basis, to all employers for their employees, as well as to the state governments. The existing Central government employees will continue to enjoy the present pension benefit.
The new system will be mandatory for new entrants and replace the existing pension provisions. The existing provisions of government provident fund (GPF) will also be withdrawn. The monthly contribution will be 10 per cent of the salary and DA by the employee, with matching contribution by the government. The pension contributions and accumulation will be accorded tax preference up to a certain limit.
Officials said the new system of pension seeks to strengthen the social security while reducing the government pension bill which has been growing at a compound annual rate of 21 per cent and is rendering government finances unsustainable. At present, only 11 per cent of India's working people have the benefit of pension. The new system has the potential of getting pension cover for more people in government, private and self-employed categories, officials said.
The new contributory pension system will use the existing network of bank branches and post offices to collect contributions and interact with participants. It will have a Central record keeping and accounting infrastructure.
There will be a number of pension fund managers, who will offer three types of schemes. Under Option A, 60 per cent of the assets will be held in government securities, 30 per cent in investment grade corporate bonds and 10 per cent in equity. Under Option B, the asset allocation will be 40 per cent, 40 per cent and 20 per cent, respectively. Under Option C, 50 per cent of the assets will be held in equity and the balance 50 per cent will be split between government securities and corporate bonds.
The individual will be free to allocate his money across any of these choices. Through this, the individual would be able to build up pension wealth. The employee can normally exit at or after the age of 60 years. At exit, the individual would be mandatorily required to invest 40 per cent of the pension wealth to purchase an annuity from a life insurance company
.
It is expected that contributions of 10 per cent of the salary and a matching contribution by the government can achieve a replacement rate of 56 per cent of last emoluments for Group A employees, around 58 per cent for Group B employees, around 59 per cent for Group C employees and 68 per cent for Group D staff.
source:http://timesofindia.indiatimes.com
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