Big Relief to Employees, Government took Big Decision on NPS


NPS
NPS- Representational Image

In a big relief to the employees finance minister Nirmala Sitharaman announced on Friday that the National Pension Scheme(NPS) will be reviewed under the chairmanship of the Union Finance Secretary, for which a committee will be formed. The committee will find a solution to the pension problems.

Addressing the Lok Sabha, she said that many such reports hav been received that there is a need to reform the National Pension Scheme for the government employees.

“Representation have been received that the National Pension System for the government employees need to be improved. I propose to set up a committee under the finance secretary to look into this issue of pension and evolve an approach which addresses the needs of the employees while maintaining fiscal prudence to protect common citizens. The approach will be designed for adoption by both central and state governments”

Nirmala Sitharaman(Finance Minister)

National Pension System Drawbacks

The National Pension Scheme (NPS) is a voluntary, defined contribution retirement savings scheme.It was launched by the Indian government in 2004 to provide retirement benefits to all citizens of India.NPS is regulated by the Pension Fund Regulatory and Development Authority (PFRDA) and is open to all Indian citizens aged between 18 and 60 years.

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Despite its benefits, the National Pension Scheme also has some drawbacks that investors should be aware of. Some of these drawbacks include:

  1. Limited investment choices: One of the significant drawbacks of the National Pension Scheme is its limited investment choices. NPS investors can only invest in equities, government bonds, and corporate bonds. This limited investment portfolio may not be suitable for investors who are looking for more diverse investment options.
  2. Limited liquidity: The National Pension Scheme has limited liquidity options. Investors cannot withdraw their entire investment before retirement, except in specific cases like terminal illness. This lack of liquidity may be a significant concern for investors who require regular access to their investments.
  3. Taxation on withdrawal: Although the National Pension Scheme offers tax benefits at the time of investment, withdrawals from NPS accounts are taxable. This means that investors will have to pay taxes on the amount they withdraw during retirement, which can reduce the total value of their investment.
  4. Lack of clarity on pension amount: The National Pension Scheme is a defined contribution scheme, which means that the final pension amount depends on the performance of the investment portfolio. Therefore, it is challenging to predict the pension amount with certainty. This lack of clarity may be a significant concern for investors who are looking for more predictable retirement benefits.

In conclusion, while the National Pension Scheme offers benefits, including tax benefits and retirement benefits, it also has several drawbacks, such as limited investment choices, limited liquidity options, taxation on withdrawal, and lack of clarity on pension amounts. Hope with this announcement, new committee will be able to address these issues.

Also read General Budget 2023: Income Tax Exemption Limit Increased from Rs 5 lakh to Rs 7 lakh, Finance Minister gave Statement

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