Rule 2 — NPS Rules
Original Rule Text
2. The Pension Scheme as existed prior to 01 Jan 2004 has been a system of ‘Defined Benefit Pension Scheme’, which provides a monthly amount as pension and a lumpsum amount as Gratuity to the employee. A portion of the pension could be commuted and drawn as a lumpsum amount at the time of retirement. In the case of death of the employee, family pension would be available to the spouse for life and after the death of the spouse to the children, subject to certain conditions.
- BURDEN OF PENSION SCHEME
What This Means
Before 2004, the central government operated a 'Defined Benefit Pension Scheme.' Under this system, a retiring government employee received a monthly pension (calculated as a percentage of their last drawn pay) and a one-time lump sum called Gratuity. The employee could also choose to commute part of the pension — that is, receive a larger lump sum upfront in exchange for a reduced monthly pension for 15 years, after which the full pension was restored.
In the event of an employee's death, a family pension was payable to the spouse for life. After the spouse's death, the children could receive the family pension subject to conditions (such as not being married, employed, or above the eligible age). The government bore the entire cost of these benefits without any regular contribution from the employee's salary during service. This model worked reasonably well in earlier decades but became financially unsustainable as the workforce and longevity grew.
This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.
Key Points
- 1Old scheme was a 'Defined Benefit' system — pension amount was fixed based on last pay drawn, not on savings accumulated.
- 2Retiring employees received a monthly pension plus a one-time Gratuity.
- 3Part of the pension could be 'commuted' into a lump sum upfront; full pension restored after 15 years.
- 4Family pension was available to the spouse for life, and then to children subject to conditions.
- 5Employees made no contribution to pension from their salaries — the government funded the entire liability.
Practical Example
Under the old scheme, Ramchandra, a retired Director, received 50% of his last drawn basic pay as monthly pension (say Rs 25,000 per month) plus a one-time gratuity of Rs 10 lakh. He commuted 40% of his pension — receiving a lump sum of roughly Rs 18 lakh — which reduced his monthly pension to Rs 15,000 for 15 years. After 15 years, his full Rs 25,000 was restored.
When Ramchandra passed away, his wife received family pension — typically 60% of his pension — for her lifetime. The government funded all of this entirely from the annual budget without any contribution from Ramchandra during his service.
This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.
Frequently Asked Questions
▼
▼
▼
This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.