Rule 3 — NPS Rules
Original Rule Text
3. In the Defined Pension Benefit Scheme, the employee does not make any regular contribution from his salary during the service to earn the pensionary benefits after retirement. Such a scheme is bound to become a great financial burden to the exchequer which could not be financially sustained for long.
What This Means
Under the Defined Benefit Pension Scheme, employees did not contribute a single rupee from their salaries toward their own pension. They simply served, retired, and received a pension funded entirely by the government exchequer. While this was generous and provided security to retiring employees, it created a severe and growing financial burden on the government's annual budget.
As more and more government employees retired every year, and as life expectancy increased, the pension outgo kept rising. There was no dedicated fund for it — pensions were paid directly from the government's revenue budget each year. This pay-as-you-go model meant the pension liability was open-ended and could not be predicted or capped. It became clear by the late 1990s and early 2000s that such a scheme was fiscally unsustainable and would crowd out other government expenditure over time.
This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.
Key Points
- 1Employees made zero contribution from their salaries toward pension under the old scheme.
- 2The government paid pensions entirely from the annual revenue budget — a 'pay-as-you-go' model.
- 3The pension bill grew rapidly as the number of retired employees increased each year.
- 4No dedicated pension fund existed; there was no corpus built up during the employee's service.
- 5The scheme was financially unsustainable in the long run, prompting the shift to NPS.
Practical Example
If a ministry had 1,000 active employees in 1985, by 2000 it might have 400 retirees drawing pensions simultaneously, and by 2020, 800 retirees — all drawing monthly pensions funded from the current year's budget. Meanwhile, new employees also kept joining, increasing future liabilities. The government's pension bill grew from a few hundred crores in the 1990s to tens of thousands of crores annually. This ballooning expenditure threatened to crowd out spending on infrastructure, health, and education — driving the decision to move to NPS.
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.