New NPS Scheme with equal equity-debt mix to be launched in July-August

A new National Pension System (NPS) scheme is slated to launch between July and August, Pension Fund Regulatory and Development Authority (PFRDA) chairman Deepak Mohanty has said. A social security initiative by the Central Government, NPS is open to employees from the public, private and unorganised sectors, except those from the armed forces.

“July-September new NPS balance lifecycle scheme will be launched. The new scheme will have a 50% investment in debt and equity each. It will balance the return and risk due to age factors,” Mohanty said at a press briefing, Moneycontrol reported.

The new scheme will seek to strike a balance between risks and returns, allocating 50% of investments to debt and the remaining half to equity. The debt and equity allocations will be based on the subscriber’s age.

For investors over 45 years of age, the proportion of debt investments will be increased to reduce risk and offer a more secure investment approach. Existing NPS subscribers will also have the option to switch to the upcoming scheme, according to the PFRDA Chairman’s statement.

All pension funds will provide this new NPS balance lifecycle scheme.

Monitored by the PFRDA, the NPS is a voluntary scheme for private-sector employees. Subscription to the scheme, however, is mandatory for Central Government Employees who have joined their services after January 1, 2004.

NPS subscribers are free to choose their contribution amount and frequency. Contributions to this government pension scheme are eligible for tax deductions under Section 80CCD (1) of the Income Tax Act, up to a limit of ₹1.5 lakh in a financial year. An additional tax benefit of up to ₹50,000 is available under Section 80CCD(1B).

Previously, reports suggested that the Central Government was working on plans to increase the benefits provided under the National Pension System (NPS), including an assured pension of up to 50% of the last basic pay drawn by the employee.

The proposed changes to the scheme guarantee a pension of 40% to 50% of the last drawn pay, along with adjustments based on years of service and accounting for withdrawals made from the pension corpus. Any shortfall in the pension corpus required to meet the guaranteed pension amount would be covered by the central government’s budget.

Under the old pension scheme, government employees who came into service before 2004 are entitled to 50% of their last salary as pension, if they have at least 20 years of uninterrupted service.

Meanwhile, the NPS requires a minimum of 40% of the accumulated contributions to be invested in annuities to generate a monthly pension, which is not a guaranteed amount and is subject to annuity returns. The remaining 60% of the pension can be withdrawn tax-free.