Why Have Indicators Caused An Increase In The Number Of Employees Enrolling In The New Pension Plan

new pension scheme

The National Pension System, unlike other ERS instruments in India such as EPF and PPF is an ERS instrument in which the whole corpus is subjected to tax at maturity for the member’s whole life and all pension withdrawal value is tax free. The National Pension System was introduced by the government of India after the second world war with the aim of providing the financially disadvantaged veterans with a guaranteed income. The concept of the pension fund in India is far from ideal. It should be ensured that the veterans are not deprived of their right to a pension when the government decides to discontinue it.

The New Pension Scheme In India

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The new pension scheme in India is not without its problems. The pension fund is very inefficient from the point of view of the investment return on the part of the employer. Though it is not suggested that the pension plan cannot be profitable in the long run, the present scenario does not provide with much scope for the pension plan to earn more profit. One of the main reasons for this is that the number of non-retired personnel is increasing rapidly. The proportion of retired employees in the workforce is also increasing with time.

A lot of effort has been made by the government to reduce the dependency ratio in the country. But this does not help the government in achieving its planned targets. This is because the ratio of old to new pension plan members has been rising consistently since the implementation of the new pension scheme. As the number of old people increases, so does the relative share of the dependents. According to an estimate by one leading study company, there has been an alarming rise in the dependency ratio in the past four decades.

There are several factors responsible for the escalating trend. One of the major reasons is the rising inflation rate. Though the monthly payouts are higher than the olden days, the cost of living has also increased quite a bit. According to an estimation, the average contribution made by the individual is nearly three-fourth of the total income earned by him. The new pension scheme enables an individual to make a higher contribution.

This is possible only if the employees are offered another kind of retirement benefits. Even then, the government employees who are yet to retire and those who are still employed can make the contributions under the new pension scheme. But this facility is not available for the retired employees of the Indian Railways, Sea freight services or the Air Force. In other words, all other sections of the public sector employees cannot avail this opportunity. The only exception to this rule is the postal employees who have been given special facilities to enjoy the post-retirement pay.

Last Wo

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Many other countries have offered some kind of incentive to its employees when they opt for the new pension scheme. In most cases, the incentive is fixed in the form of a share of the company stock being exchanged for every five years of service. However, the companies providing such incentives usually have their employees to exchange their old national retirement schemes for the new scheme. So, the employees have actually already saved tax money even before they start receiving the benefits under the scheme.

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