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India: No fixed pension for new government employees

 By P Vaidyanathan Iyer, Vishaka Zadoo
Business Standard

 May 27, 2003

New 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.

According to 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.

The finance 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 regime.

“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 government employees.

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 players.

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.

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