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No fixed pension for new government employees
P Vaidyanathan Iyer, Vishaka Zadoo
May 27, 2003
Delhi - New
government employees will no longer get an assured pension, which is at
present 50 per cent of their last drawn salary.
They will be
required to shell out 7.5-10 per cent of their basic pay towards pension.
While the government will make a similar contribution towards their
pension kitty, it will not guarantee any fixed pension.
government officials, the current system of deducting a minimum of 6 per
cent of the basic pay towards provident fund will not be applicable to
individuals joining government services after October 2.
ministry will soon place a proposal before the Cabinet to operationalise
the new pension system.
The officials said
the idea behind the new pension was to move away from a defined benefit
“There will now
be a defined contribution by new government recruits. The benefit will,
however, depend on how the fund is managed during the employees’ service
with the government,” said an official.
Six pension funds,
including one in the public sector, will vie for managing the funds of new
The Pension Funds
Development and Regulatory Authority, to be set up through an executive
order, will set the rules of the business and issue licences to the new
Fresh recruits in
the railways and defence will, however, be kept out of the new pension
regime for the time being.
While defence is
considered a sensitive sector and needs special care, the Railways have
their own pension fund.
The Railways, whose
pension bill has already exceeded its wage bill, has decided in principle
to join the defined contributory pension regime.
The officials said
both Railways and defence employees will have the option to participate in
the new pension regime in future.
Each pension fund
will offer three types of schemes — safe, balanced and growth —for the
new employees to decide and invest their contribution.
The government will, however, not guarantee their pensions. The net asset value of the schemes will be disclosed by the pension funds daily and employees will have the flexibility to switch between funds.