CG - Cabinet Clears Rise In Government Contribution To National Pension System: 10 Points

The Union Cabinet on Monday raised government contribution towards the National Pension System (NPS) to 14 per cent. The move, which will lead to higher payouts, is expected to benefit 18 lakh central government employees, the Ministry of Finance said in a statement. The mandatory contribution by the central government for its employees covered under the National Pension System Tier-1 accounts currently stands at 10 per cent. Making the National Pension System more attractive will facilitate the government in attracting and retaining the best talent, the statement added.

Here are 10 things to know about the Cabinet raising government's NPS contribution:

1. The Cabinet also gave nod to an increase to 60 per cent in income tax exemption limit applicable to lump sum withdrawal from NPS on exit.
2. This move by the government will make the entire withdrawal from NPS on maturity exempt from income tax.
3. At present, 40 per cent of the total accumulated corpus utilised for purchase of annuity is tax-exempt. Out of 60 per cent of the corpus withdrawn by the NPS subscriber at the time of retirement, 40 per cent is tax-exempt and but the remaining 20 per cent is taxable.
4. The Cabinet also approved introduction of freedom of choice in selection of pension funds to central government employees.
5. The latest changes in NPS rules will cost the exchequer around Rs. 2,840 crore for financial year 2019-20, the official statement noted.
6. The government said that the proposed changes to NPS will be implemented immediately after "critical decisions are taken in consultation with the other concerned ministries/departments".
7. The proposed changes in NPS will also lead to an increase in old-age security in a time of rising life expectancy, it said.
8. New entrants to central government service after January 1, 2004 are covered under the National Pension System (NPS).
9. The Committee of Secretaries, constituted to suggest steps for streamlining the NPS under Seventh Pay Commission, submitted its report earlier this year. 
10. NPS is a government-run pension-cum-investment scheme regulated by the Pension Fund Regulatory and Development Authority (PFRDA).