7th Pay Commission expressed its
regret about transition from Old Pension Scheme to New Pension Scheme in its
report.
2004-2011 Entrants : Government
employees who have joined service between 2004 and 2011 have suffered due to
delay in finalizing the structure of the NPS and the issue of detailed
instructions. Although they have made regular contributions, in many cases, this
money and/or counterpart contributions were not deployed in the market. In the
case of AIS officers, some states are yet to release counterpart
contributions or pay interest on delayed contributions. This has led to a
situation where the accumulated corpus even after 11 years of service could be
meagre. It is necessary that this situation which arose during the transition
from OPS to NPS be addressed.
The Commission therefore recommends
that Central Governments and State Governments should, in a time bound manner,
ensure that all the due contribution along with compounded interest, where
contributions have been delayed, be deposited in the accounts of the
beneficiaries. Advisories should be issued to the State Governments to deposit
amounts, if not already done, in respect of NPS beneficiaries belonging to All
India Services.
Many Association have pointed out
that unlike the facility under GPF, it is not possible to make withdrawals
under NPS, even to meet obligatory social expenditure. This forces employees
towards increased indebtedness as they have to borrow from elsewhere.
The Commission notes that under the
NPS Tier-I account, a subscriber is permitted to make partial withdrawal of
twenty five percent of the contributions made to his/her individual pension
account for certain specified purposes. Such withdrawals are permitted a
maximum of three times during the entire tenure of subscription and a period of
at least five years should have elapsed between two such withdrawals.
The Commission further notes that
there exists a voluntary Tier-II account. Under this account, a subscriber can,
at any time, withdraw the accumulated wealth either in full or part and there
is no limit on such withdrawals provided the account has sufficient balance of accumulated
pension wealth to cover the amount being withdrawn. However, the Tier-II
account is yet to be made operational. The Commission therefore recommends that
PFRDA should take steps to make the Tier-II accounts operational as early as
possible to enable the NPS subscribers the facility of withdrawals from their
accounts in case of requirement.
Transparency under NPS : Many
associations and individuals have complained that the information relating to
the NPS is inadequate, resulting in high degree of uncertainty in the minds of
contributors about post-retirement benefits. The Commission noted that PFRDA
sends a communication to every participant each month with the current pension
wealth and the latest contribution that has been credited. The Commission
recommends that focused efforts be made to capture email addresses and mobile
numbers of subscribers so that seamless communication is ensured for all
subscribers. The Commission recommends that consultation with stakeholders
should also be held periodically in different parts of the country.
The Commission notes that no
department of Government of India is taking ownership of the NPS. The
Commission recommends that a Committee consisting of Secretary, Department of
Financial Services, Secretary, Department of Pensions and Pensioners Welfare and
Secretary, Department of Administrative Reforms and Public Grievances may be
constituted to review the progress of implementation of NPS. The Commission
also recommends that steps should be taken for establishment of an Ombudsman
for redressing individual grievances relating to NPS.
Tax Treatment under the NPS : NPS is
under the Exempt–Exempt – Tax (EET) regime while the General Provident Fund
under the OPS is under Exempt–Exempt–Exempt (EEE) dispensation. Under the NPS,
while the contributions and the accumulations are tax-exempt, withdrawals are
taxable. As such, this is an inferior tax treatment when compared to other
pension programmes such as General Provident Fund, Contributory Provident Fund,
Employees Provident Fund and Public Provident Fund wherein contributions,
accumulations and withdrawals are tax-exempt.
The Commission feels that tax
neutrality should be ensured across various avenues for long term savings for
post retirement incomes so that the employees covered by NPS are not at a
disadvantage. The Commission therefore recommends that withdrawals under the
NPS should be tax-exempt to place NPS at par with other pension schemes. The
Commission also recommends that the service tax levied at the time of annuity
purchase by NPS subscribers should be exempted.
