Rule 1 — NPS Rules
Original Rule Text
1. The Government of India (GoI), being a model employer has all along provided various welfare schemes to its employees. These schemes have provided a reasonably comfortable and financially independent life to the Govt employees while in service and after retirement and also to their dependent family members even after the death of the Govt. employer.
1. Whether a retiring Government servant is entitled for leave encashment after retirement under the NPS? The benefit of encashment of leave salary is not a part of the retirement benefits admissible under Central Civil Services (Pension) Rules, 1972. It is payable in terms of CCS (Leave) Rules which will continue to be applicable to the government servants who join the government service on after 1-1-2004. Therefore, the benefit of encashment of leave salary payable to the governments/to their families on account of retirement/death will be admissible. 2. Why is it mandatory to use 40% of pension wealth to purchase the annuity at the time of the exit (i.e. after the age of 60 years) from NPS? This provision has been made in the New Pension Scheme with an intention that the retired government servants should get regular monthly income during their retired life. 3. Whether any minimum age or minimum service is required to quit from Tier-I? Exit from Tier-I can only take place when an individual leaves Government service. However, as Tier-II is entirely optional, the subscriber may decide whether to continue with it or to close it. However, to have a Tier-II account, having a Tier-I account is mandatory. 4. Whether contribution towards Tier-I from arrears of DA is to be deducted? Yes. Since the contribution is to be worked out at 10% of (Pay+ DP+DA), it needs to be revised whenever there is any change in these elements 5. Who will calculate the interest PAO or CPAO? The PAO should calculate the interest. 6. What happens if an employee gets transferred during the month? Which office will make deduction of Contribution? As in the case of other recoveries, the recovery of contributions for the full month (both individual and government) will be made by the office who will draw salary for the maximum period. 7. Whether NPA payable to medical officers will count towards ‘Pay’ for the purpose of working out contributions to NPS? Yes. Ministry of Health & Family Welfare has clarified vide their O.M. no. A45012/11/97-CHS.V dated 7-4-98 that the Non-Practising Allowance shall count as ‘pay’ for all service benefits. Therefore, this will be taken into account for working out the contribution towards the New Pension Scheme.
What This Means
The National Pension System (NPS) is the retirement savings arrangement introduced for central government employees who joined service on or after 1 January 2004. Unlike the older pension system, NPS requires both the employee and the government to contribute regularly during the employee's working life. The accumulated savings are then used to provide a monthly pension after retirement.
Several frequently asked questions arise around NPS. Leave encashment (converting unused leave into cash) remains available under the CCS Leave Rules and is not affected by NPS — so retiring employees still receive it. The mandatory requirement to use 40% of the retirement corpus to buy an annuity (a monthly pension-paying insurance plan) exists specifically to guarantee a regular income in retired life. Tier-I (the main pension account) can only be exited when the employee leaves government service; Tier-II (an optional savings account) can be closed at any time, but it requires an active Tier-I account.
Contributions are calculated at 10% of basic pay plus Dearness Allowance. When DA arrears are paid, contributions must be recalculated and recovered accordingly. For employees on foreign service, contribution is based on presumptive pay (what they would have earned in the parent office). Non-Practising Allowance paid to medical officers counts as 'pay' for NPS contribution purposes.
This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.
Key Points
- 1NPS applies to central government employees (except Armed Forces) joining on or after 1 January 2004.
- 2Both employee (10% of pay+DA) and government (14% from 01.04.2019) contribute monthly.
- 3Leave encashment continues to be available under CCS (Leave) Rules — it is separate from NPS retirement benefits.
- 440% of the pension corpus must mandatorily be used to purchase an annuity at retirement to secure a monthly income.
- 5Tier-I is non-withdrawable; exit only occurs when leaving government service. Tier-II is optional and withdrawable.
- 6Contributions from DA arrears must be revised whenever pay elements change.
- 7Non-Practising Allowance (NPA) for medical officers counts as 'pay' for NPS contributions.
Practical Example
Rajesh Kumar is a Central Government officer who joined in 2006. Each month, 10% of his basic pay plus DA is deducted and deposited into his PRAN (Permanent Retirement Account Number). His employer (the government) adds 14% on top of that. When he retires at 60, the total corpus accumulated over his career is, say, Rs 80 lakh. He can withdraw Rs 48 lakh (60%) as a lump sum; the remaining Rs 32 lakh (40%) must be used to buy an annuity from an empanelled insurer, which will pay him a fixed monthly amount for the rest of his life.
When Rajesh gets a DA hike with arrears for three previous months, his accounts section recalculates his NPS contribution for those three months and deducts the shortfall from his arrears payment. This ensures the PRAN is always funded correctly.
This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.
Frequently Asked Questions
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This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.