NPS Rules Change: Update for Central Government Employees

NPS rules Change: The central government has changed the contribution rules for government employees in the National Pension System (NPS).

The central government has changed the contribution rules for government employees in the National Pension System (NPS). The government has issued new guidelines for NPS contributions. The Department of Pension and Pensioners’ Welfare, under the Ministry of Personnel, Public Grievances, and Pensions, has shared an office memorandum, which provides information about the changes to the rules related to NPS contributions of employees. The guidelines have reiterated some existing provisions, including the requirement of a 10% monthly salary contribution. This contribution will be reviewed from time to time.

Changes in NPS Contribution

If Suspended: If an employee is suspended, they will have the option to continue their NPS contribution. After the suspension is lifted and they rejoin the service, their contribution will be recalculated based on their salary at that time.
During Probation: According to the new guidelines, probationary period government employees will also be required to make NPS contributions, so that their pension savings can start as soon as possible.

Unpaid Leave: Employees who are on unpaid leave or unauthorized leave will not be required to make contributions. Employees on deputation to other departments or organizations will also have to make NPS contributions, unless they have been transferred.
If Error Occurs: The guidelines have clarified that if there is an error in the contribution, it will be deposited into the beneficiary’s pension account with interest.

NPS Has Outperformed Mutual Funds in Returns

Equity Scheme

Term NPS-E (Tier 1) Large Cap Funds Flexicap
5 years 19.6% 18.7% 22.6%
10 years 13.9% 14.8% 15.9%
(Annual Average Return)

Corporate Bond Scheme

Term NPS-C (Tier 1) Banking-PSU Fund Corporate Bond Fund
5 years 7.6% 6.4% 6.5%
10 years 8.8% 7.2% 7.3%
15 years 9.4% 6.9% 7.4%
(Annual Average Return)

G-Sec Scheme

Term NPS-G (Tier 1) Gilt Funds
5 years 7.7% 6.5%
10 years 9.2% 7.9%
15 years 8.8% 7.5%
(Annual Average Return)

Two Options for Investment in NPS

Active Choice: In this fund, investors can invest up to 75% of their contribution in equity till the age of 50. The remaining 25% will be allocated to government securities, corporate bonds, and alternative investment funds. After that, the equity allocation will be 50% at the age of 60.

Auto Choice: This is also known as the Life Cycle Fund. Here, investors have three options, based on their risk appetite. Till the age of 35, the investment will be 100% in equity. In the conservative fund, 25% will be invested in equity. In the moderate fund, 50% will be invested in equity, and in the aggressive fund, 75% will be invested in equity.