Background and Context

  • National Pension System (NPS): Launched on 1 January 2004 as a market‑linked, contributory pension scheme administered by the Pension Fund Regulatory and Development Authority (PFRDA) under the PFRDA Act, 2013.
  • Old Pension Scheme (OPS): Unfunded, leading to a surge in government pension liabilities from ₹3,272 crore (1990‑91) to over ₹1.9 lakh crore (2020‑21).
  • Shift to NPS: To curb fiscal stress, the government replaced OPS with NPS and later introduced the Unified Pension Scheme (UPS) based on the Somanathan Committee (2023) recommendations.

MS Sahoo Committee – Details

  • Composition: 15‑member standing advisory committee; Chairperson – MS Sahoo, former chair of the Insolvency and Bankruptcy Board of India (IBBI).
  • Mandate:
  • Formulate legally enforceable, market‑based guarantees for pension payouts.
  • Define parameters such as lock‑in periods, pricing, capital requirements, and risk‑management norms.
  • Examine tax implications of in‑system payouts.
  • Can invite external specialists for technical consultation.
  • Significance: Marks a policy shift from mere exit flexibility to income certainty, aligning with the Viksit Bharat 2047 vision of financial independence for the elderly.

NPS – Key Facts

  • Contribution Structure:
  • Employee: 10 % of Basic Pay + Dearness Allowance.
  • Government: 14 % matching contribution.
  • Features:
  • Choice of schemes, pension fund managers, and private investment options.
  • No guaranteed pension; returns are market‑linked.
  • Regulatory Body: PFRDA.

Need for Reforms

  • Fiscal Sustainability: Ensuring retirees receive a stable income without creating new fiscal burdens.
  • Investor Confidence: Guarantee mechanisms can boost long‑term savings and attract institutional participation.
  • Social Security: Enhances social protection under Article 41 (Directive Principles of State Policy).

NPS Vatsalya Scheme (2025 Guidelines)

  • Purpose: Long‑term contributory savings for minors (below 18 years).
  • Eligibility: All Indian citizens, including NRI/OCI, with the minor as the sole beneficiary; operated by a parent or legal guardian.
  • Contribution:
  • Minimum ₹250 initial and annual contribution; no upper limit.
  • Contributions can be gifted.
  • Withdrawal Provisions:
  • Partial withdrawals allowed after 3 years for education/medical purposes (up to 25 % of the minor’s own contributions).
  • On attaining majority (18‑21 years), the subscriber may:
  • Continue with NPS Vatsalya,
  • Shift to standard NPS Tier I, or
  • Exit (minimum 20 % of corpus must purchase an annuity; full withdrawal permitted if corpus ≤ ₹8 lakh).

Significance for Governance & Policy

  • Income Security: Provides a structured, guaranteed income stream for retirees, reducing old‑age poverty.
  • Fiscal Prudence: Market‑based guarantees shift risk to private capital markets, easing the fiscal load.
  • Financial Inclusion: Extends pension coverage to informal sector workers and minors, fostering a savings culture.

Related Constitutional/Legal Provisions

  • Article 41 – State to secure a social order that ensures economic welfare and social security.
  • PFRDA Act, 2013 – Governs the functioning of the Pension Fund Regulatory and Development Authority.
  • Finance Act provisions – Tax treatment of pension payouts and annuity purchases.

Prepared for UPSC Civil Services Examination – Prelims & Mains