Central government employees getting short-changed by NPS allocations

Central government employees are getting an unfair deal with the NPS as politicians play politics and finance ministry plays safe

Central government employees have missed out on one of the biggest bull runs, which would have given them the desired head start that they needed, and for no fault of theirs. This is all thanks to the indecisiveness of politicians and the ministry of finance playing it safe regarding the New Pension Scheme (NPS) for Central government employees.

Out of the seven asset management companies (AMCs) that manage NPS, only three of them, all of which are state-controlled companies, are allowed to manage the funds for government employees. According to the data available, State Bank of India (SBI), Unit Trust of India (UTI) and Life Insurance Corporation (LIC) offered a return of around 11% to 12% to Central and state government employees between 1st April and 31st March.

While this seems better than the 8% that government employees were getting under the earlier regime, it is a low return given that under NPS, a part of the money can be invested in equities. Between 1 April 2009 and 31 March 2010, the Sensex rose 77%. Now if the employees were allowed to invest 50% in equities, then the returns on their NPS investments would have been that much higher, as the equity portion of their assets would have yielded healthy returns. Instead, the employees got returns as low as 11% on their NPS investment.

The reason the returns are low is because only 15% of the money has been allocated to equities under a diktat. This is because politicians are squabbling over the NPS itself, with Mamata Banerjee hell bent on stalling the full application of the scheme until the West Bengal elections next year. And the ministry of finance lacks the courage to make it a market-determined scheme and has played safe by allowing only 15% to be put in equities. According to officials close to the matter, this directive has come straight from the finance ministry itself. This directive is unfair to government employees because they have been cut loose from a guaranteed pension scheme and have to choose between different plans to create their post-retirement nest egg. However, in practice, they don't have the choice.

NPS is a new contributory pension scheme introduced by the Central government for its own new employees, joining after 1 January 2004. Under the system, each new central government employee will open a personal retirement account on joining service. Every month, and till the employee retires or leaves government service, 10% of the employee's salary will be transferred into this account with matching contribution from the government. When the person retires, he will be able to use these savings to take care of the needs and expenses of his family during old age.

In theory, the NPS offers a choice to investors to put more money under different schemes but in practice, only 15% is going into equities even though the key point of NPS is that it is a defined contribution scheme and the benefits would depend upon the amounts contributed and the investment growth up to the point of exit from NPS. Returns are not guaranteed.

A fund manager handling NPS told us that he is allowed to invest only up to 15% of the amount in equities, while the rest is invested in a mix of government securities and money market instruments. Until a year back (before 1 April 2009), only 5% was allowed to be invested in equities, while the rest went into Central government securities and money market instruments. The change in stance was done not so much as to ensure better returns on investment, but to stay in line with other pension fund products.

The official reason given to fund managers is that the government wants to play it safe. According to a fund manager, there is some logistical issue, because of which the entire government employee database has not flown to the Central Recordkeeping Agency (CRA) till now. Somebody else had to take a call on the asset allocation and to be on the safer side, the government decided not to allocate more than 15%.

The Pension Fund Regulatory and Development Authority (PFRDA) Bill is still to become an Act and as such PFRDA has no legal powers and functions. In fact, the PFRDA Bill 2009 had become the bone of contention among political bigwigs from West Bengal and Tamil Nadu. It was introduced in 2005 by the then finance minister P Chidambaram. The Bill proposed to set up a regulator and give more freedom to subscribers to invest in pension funds. Sadly, it attracted opposition by the Left Front which is against the equity investment option given to investors in the NPS.

Even today, the government faces stiff opposition to the Bill from its own coalition. The Congress-led United Progressive Alliance (UPA), which had to garner the support of different political parties like M Karunanidhi's Dravida Munnettra Kazhagam (DMK) and Mamata Banerjee's Trinamool Congress, had put the legislation into deep cold storage as they were opposed to the Bill.  Meanwhile, government employees have missed out on a year of stupendous return and will be forced to earn subpar returns for a few years. The next major market move may be years away and it is not even certain that by that time, government employees will still be suffering from the worst of both - market-determined return but no choice to choose market instruments of high returns.



Dibyojyoti saha

4 years ago

It totally misses the big picture. In the name of giving option more equity options may be provided and people may have the right to choose but its pension! its a substitute to govt pension! the most stable, fixed form of pension when you are trying to replace then why give the option of a volatile instrument. Everyone can choose but is everyone financially aware of the volatility? May not be slave but surely a child in eyes of govt!. Just think i toil and toil and reach my retirement age, i have 30-40% equity exposure in my nps because i got motivated by the likes of this big talk articles and researchers.(Shadows of the generation of researchers who sweared how usefull and great those junk sub prime instruments were till 2007)and in the year of my retiremnt i still have the exposure in equity and have not transfered to a debt fund because my knowledge of finance is child alike and i plan to withdraw 40% of my nps corpus and receive rest through equity. I need that 40% for some thing.and the market crashed on that very 40% is half of the principal..and then i would curse why govt allowed equity exposure of such level..wats my fault i didnt knew finance that well.


5 years ago

Finaly I submitted my NPS acct opening form at Kotak Bank on 7 May'11. However till date neither my acct is opened nor the cheque has been debited. Kotak says that they are only a collection agent & acct is opened by NPS. I should hear from them in 4-5 weeks. I have no clue where to followup now. Any suggestions? WHat is ur exp in NPS acct opening? I am a Pvt Sector employee..


5 years ago

The Government employees have been done away with their pension , gratuity their own contribution to the erstwhile PF used in contigencies. Has anyone calculated/questioned the basis of arbitrary 10% contribution by government in lieu of above which leads to one-fourth of the pension compared to old pension scheme and on top loss of gratuity.It is synonomous to saying that since expenses have gone up those after 2004 will be given half the salary of their counterpart.


6 years ago

Come On...
If the Sensex would have gone done by 30%.Yiu woukd have said it is foolish that employees pension money be traded on the stock market.
Looking back everyone can find fault.


6 years ago

i forgot my password, now how can i make/apply new password


6 years ago

I think awareness is also an issue with Banks about NPS.
I live in Powai, Mumbai. I visited bank of baroda, ICICI, HDFC Bank and SBI at Powai. None of them have even heard of NPS. They gave me such blank looks as if I am new to this world. BoB helpfully suggested that I must be meaning NSC.
If this is the awareness of NPS then someone in NPS Org must crack the whip so that public can open NPS accounts..

harish maheshwari

6 years ago

Praveen is right when he says that individual who is making the invesment must have the liberty to decide where he wants to invest.
If he is not smart enough, it is his return which will take a beating. Why others are bothered about that.

Infact the biggest problem with NPS is that it is biased towards Debt Instruments, where one can invest 100% but in case of equity the cap has been fixed at 50%. When you are giving liberty to invest 100% in Debt why fixing maximum cap of 50% in equity ?. Give level playing filed man !.

And everyone knows, nothing had so far matched equity's returns in long run (except property).


6 years ago

ravi,you seem to have missed the point totally.
the argument is not that stock market returns are guaranteed.its ofcourse volatile given that its manipulated by money printing central banks.

the problem is that instead of individuals being allowed to determine their own equity allocation,it is babus and useless netas who are trying to play financial player for these employees.what are they? little children or slaves?


6 years ago

Very one-sided and biased article.
I too had invested in the stock market during the last one year and have only losses to show for it.
No pension scheme should be at the mercy of uncertain returns.

Pension payouts: SBI wakes up after RBI rap

Pinched by RBI’s scathing criticism of the inordinate delays in pension payouts to its customers, the state-run lender has put up advertisements in leading dailies, saying ‘We care for you’

Four months after Moneylife had reported that the Reserve Bank of India (RBI) had cracked down on the country's largest lender State Bank of India (SBI) and other banks for the inordinate delays in payments faced by government pensioners, SBI has issued an advertisement in leading newspapers that seeks to put customers' worries to rest, asking them to avail of its free helpline services for all pension-related queries.

Earlier, RBI had raised an alarm after a complaint was forwarded by a former highly-placed government officer to the deputy governor of the central bank, outlining the shoddy service given by the country's largest lender, State Bank of India (SBI), in the form of extensive delays in pension payments. Moneylife had written about this development.

(See: former officer had apparently been kept waiting unsuccessfully for ten months to receive his revised pension under the Sixth Pay Commission. This complaint forced the RBI to take a deeper look at the systems put in place by SBI for pension payments. A joint team drawn from both RBI and SBI investigated the matter and found various discrepancies in the way things were being administered.

Taking a serious view of the matter, the RBI has put in a strongly worded letter to the chairman of the bank questioning the lack of customer sensibility despite being a premier bank in the public domain. It has pointed to the absence of an effective system of customer service at the branch level where pensioners normally interface with the front office.

This also forced the RBI to inspect the system at other Agency Banks making pension payments. The findings were more or less the same across all Agency Banks.

In view of the above, the RBI had advised these banks (through a circular dated 9 April 2010), including SBI, to undertake review of the system of attending to customer service and have a pension accounts guide at all branches to assist the pensioners in all their dealings with the bank. Additionally, the RBI had demanded that suitable arrangements be made, to place on the bank website details about the pension calculations, and made available to the pensioners at periodic intervals with sufficient advertisements to that effect.

As with the other banks, RBI demanded that SBI make the payment of the revised pension and arrears within 15 days from the date of receipt of its communication to that effect. Additionally, it also advised the bank to make a penal interest payment of 2% for any delay beyond the due date, which is to be credited to the pensioner's account automatically without any claim from the pensioner on the same day when the bank affords the credit for revised pension or arrears.

RBI sources told Moneylife, "We had asked SBI to look into 1,400 cases where the amount involved was to the tune of Rs30 lakh. These have been satisfactorily dealt with by the bank. SBI makes the largest payouts of pension funds in the country. We are happy that SBI is making efforts to strengthen its customer services."

SBI's advertisement requests customers to call at their helpline number for all pension-related information, including basic and dearness allowance for the past six months, arrears received and commutation. The advertisement also mentions that a pensioner can also register a complaint online by logging on to and filling up the Customer Complaint Form. A Complaint Registration Number will be issued to the complainant.



Ashish kumar gupta

5 years ago

TO, Dated: 08-2-2012
MUMBAI – 400021.

Respected Sir,
Sub: - Request to refund my debit amount 28 rupee for withdrawn from GCC.
Ref: - debited date dated on 07.02.2012
Uttar pradesh.
I want to inform you Iam Ashish kumar gupta a customer of SBI gwaltoli branch, kanpur U.P on 07/02/20012 idebit 5000 rupees from GCC at counter of Dharmshala bazar , gorakpur branch code 7896 Rs. 28 shall be deducted from my account, which should be painful for me it means that GCC counter act as a blady parasite for customer if no then what should be does helpful for customer .
28 rupees deduct weather customer deposited or with draw from his/her account.
so please take action on GCC channel which givemuch pain to your coustomer.
Thanking you.
Yours faithfully,
Ashish kumar Gupta (9889870986)
SBI, Gwaltoli,Kanpur branch.


6 years ago

Defintely banks are required to attend to the needs of the pensioners.banks are getting Rs60/- per pension payment entry from the respective departments.private banks like icici are also now entering into pension payment because of this RS60/- commisiion.if empathy is practised while dealing with pensioners' matters all the problems can be solved and more so bankers will get the whole hearted blessings from our senior citizen pension. they are flag bearers of our country's heritage,culture and tradition.bankers can feel proud if they serve the pensioners' to thier satisfaction.i am a defense pensioner now working in govt bank.i know both the sides of the coin in pension matter.all govt banks should take the RBI directive in a proactive way serve the pensionsers.otherwise because of the govt commssion this pension business itself is going to be in the hands of high tech private banks in near future.

K Narayanan

6 years ago

I am not a votary of govt banks.But look at the strain on SBI and other nationlised banks on account of pension payments.These pensioners excepting a few hardly keep any money in the bank.The min balance can be as less as Rs10.You try enter any nationlised bank having pension accounts on the 1st of any month.The office would be overcrowded with pensioners all coming at the same time to draw pension.Even if I am willing to give a fixed deposit for Rs 1 lac the branch staff do not care for me.
The bank gets a nominal amount for the pension payment.It is more a social obligation.But the govt allows new generation banks to take away cream of the business taking advantage of the societal obligation of these bank.Still SBI gives a run for the money to the gen next banks by offering teaser housing loan and fast disbursal of the loan.Even MrDeepak Parikh stooped to the level of commenting that the bank was misleading the public.Still SBI is able to compete with the pvt banks in all aspects.The share price is zooming.Instead of strengthening the infrastructure of these govt banks,the RBI is planning to give license to pvt sector to take away the creamy business from govt banks and with 74% FDI.Who will benefit.?



In Reply to K Narayanan 6 years ago

I wonder which planet Mr Narayan comes from. I am sure you have heard of the concept of Universal Service Obligation! that is all that the nationalised banks are doing in this case. Dont forget nationalised banks are frequently capitalised at public expense when they run up losses to curry favour with politicians or fund dubious industrial projects or the likes of Ketan Parekh etc (remeber Bank of India?)
If all that money wasted if fine, why grudge the concessions given to pensioners? Dont forget they are your parents and elders too. More importantly, most of them would have paid taxes at the highest and most ridiculous levels and are struggling to cope with galloping inflation. It is sad... in fact tragic that there are people who think like you. I am sure State Bank of India, for whom your heart is bleeding, wastes a lot of money of needless expenses... like say expensive gifts for all the parliamentary committees that visit the bank. Let it spend some money for pensioners too. BUT at all costs let it treat them well. There has to be a price attached to being BANKER TO THE NATION!!

K Narayanan

In Reply to asim 6 years ago

You are reading me wrong MrAsim.I am not telling that the govt banks shd not disburse pension.You agree that they are rendering noble service to the old people.They have also opened thousands of braches in the rural areas to take care of the farmers and other villagers where service was the idea and not profit.I am only telling that the govt shd strengthen the infrastructure of these banks to offer the service and at the same time take into consideration the other side of the business of these commercial banks.But look at what govt is doing.In the name of efficiency and serving larger customers they have doled out licenses to pvt sector banks where almost 74%of the share holding is by FIIs and FDI.The share price of these banks are zooming and also the profits and the loot is taken away by these foreigners like Britishers taking away the raw material like cottom and iron ore and selling finished products.Again RBI wants to give license to the pvt sector with sizeable foreign investment to loot us -indirectly by way of dividend and zooming stock price.As far as Ketan Parikh is concerned it was GTB headed by Gelli who looted the bank and the govt bailed out the bank by merging with govt bank OBC-at public cost.What Bank of India did was purchasing the pay orders (bankers cheque issued by some cooperative bank) and they are not direcrtly involved.Any way let the pensioners and farmers get service from govt banks and let the cream of other business go to pvt players like HDFC bank,ICICI bank and AXIS bank etc,enabling foreiners to loot us. (excepting a few share holders who are Indians-which is good)

ONGC to start gas production from KG Basin block in 2016-17

New Delhi: State-owned Oil and Natural Gas Corporation (ONGC) will start producing natural gas from a block that sits next to Reliance Industries' (RIL) prolific KG-D6 fields in the Bay of Bengal in 2016-17.

Minister of state for petroleum and natural gas Jitin Prasada today informed the Lok Sabha that in-place gas reserves of 3.42 trillion cubic feet have been established in block KG-DWN-98/2, in the Krishna-Godavari basin.

Of this, 1.904 trillion cubic feet (Tcf) is recoverable.

"ONGC has submitted Declaration of Commerciality (DoC) for the Northern and Southern Discovery Area in the block," he said.

Seven of the finds are in the northern part of the block, where Cairn India holds a minority 10% stake. Gas from these is proposed to be produced by combining them with two other gas discoveries in the adjacent block, he said.

"The DoC is under examination in the Directorate General of Hydrocarbons (DGH)," he said.

While Mr Prasada did not indicate the expected production from the block, company sources said 25-30 million standard cubic metres per day (mmscmd) of gas can be produced by 2016.

Once the DGH approves the commercial viability of the finds, ONGC will make a formal field development plan (FDP) outlining the specifics of producing gas from the find.

ONGC has tentatively pegged the investment required for bringing to production the Padmawati, Kanakadurga, Annapurna, N-1, D/KT, U, A, W and E gas finds in the Northern Discovery Area (NDA) of the block at over $5 billion, sources said.

As the discoveries are not independently viable, the firm plans to tie them with finds in the neighbouring acreage and develop them as a cluster. ONGC envisages 25-30 mmscmd of output from the NDA fields and G-4 and GS-29 finds in the neighbouring acreage by 2016.

ONGC's KG-DWN-98/2 block sits next to the prolific KG-D6 block of Reliance Industries in the Krishna-Godavari basin, off the East Coast.

The state-owned company had a few months back put an investment requirement of $4.05 billion for producing natural gas from the ultra deep sea UD-1 discovery in the southern part of the KG-DWN-98/2 block.

Sources said UD-1 is being planned to be developed separately and together with the NDA fields, ONGC's total spending would be in the region of $10 billion.

Sources said ONGC has so far drilled a total of 13 exploratory wells in the 7,294 sq km block, which is divided into northern and southern appraisal areas.

The Northern Discovery Area (NDA) consists of the Padmawati, Kanakadurga, Annapurna, N-1, D/KT, U, A, W and E gas finds in water depths ranging from 594 metres to 1,283 metres. The Southern Discovery Area consisting of the UD-1 discovery falls in ultra-deepwater with a depth of 2,841 metres.


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