New Pension System: RBE No. 225/2003 – Introduction of NPS

No.F(E)III/2003/PN1/24, dated 31.12.2003

Sub: Introduction of New Pension System for new entrants to Central Government Service including Railway Service.

1. A copy of Gazette Notification No.5/7/2003-ECB&PR, dated December 22, 2003 published by the Ministry of Finance, Department of Economic Affairs, introducing New Re-structured Defined Contribution Pension System for all the entrants to Central Government Service including Railway Service, from 1st of January, 2004 along with a copy of resolution dt. 10th October, 2003 constituting the Intern Pension Fund Regulatory and Development Authority (PFRDA) is circulated for information and necessary action. As a result of decisions the existing Railway Services (Pension) Rules, 1993 including Commutation of Pension Rules and Extraordinary Pension Rules and State Railway Provident Fund Rules as contained in Indian Railway Establishment Code, Vol-I (1985 Ed) 1995 Reprint shall not be applicable to the new recruits entering into Railway Service from 01.01.2004. Necessary amendments to these rules are being issued separately.

2. The Zonal Railway Administration/ Production Units, Recruiting Authorities, etc. are advised to incorporate these changes, if considered necessary, in their prospectus/ application forms/ offer of appointment to be issued to the new recruits. The new recruits joining the Railway services from 01.01.2004 on the basis of the offer of appointment already issued shall also be covered by the New Pension System and not by the Railway Services (Pension) Rules, 1993 and State Railway Provident Fund Rules.

3. The modalities for operationalising the New Pension System shall follow.

Ministry of Finance
Department of Economic Affairs (ECB & PR) Division
Notification No.F5/7/2003-ECB&PR, dated 22.12.2003
NOTIFICATION

1. F.No.5/7/2003-ECB&PR: The Government approved on 23rd August, 2003 the proposal to implement the budget announcement of 2003-04 relating to introducing a New Restructure Defined Contribution Pension System for new entrants to Central Government Service, except to armed forces, in the first stage, replacing the existing system of Defined Benefit Pension System.

(i) The system would be mandatory for all new recruits to the Central Government Service from 1st of January 2004 (except the armed forces in the first stage). The monthly contribution would be 10 percent of the salary and DA to be paid by the employee and matched by the Central Government. However, there will be no contribution from the Government in respect of individuals who are not Government employees. Contribution and investment returns would be deposited in on non-withdrawable pension Tier-I account. The existing provisions of Defined Benefit Pension and GPF would not be available to the new recruits in the Central Government Service.

(ii) In addition to the above pension account, each individual may also have a voluntary Tier-II withdrawable account at his option. The option is given as GPF will be withdrawn for new recruits in Central Government Service. Government will play no contribution in to this account. These assets would be managed through exactly the above procedure. However, the employee would be free to withdraw part or all of the ‘Second Tier’ of his money anytime. This withdrawable account does not constitute pension investment, and would attract no special tax treatment.

(iii) Individuals can normally exit at or after age 60 years from Tier-I of the pension system. At exit the individual would be mandatorily required to invest 40 percent of pension wealth to purchase an annuity (from PFRDA – regulated Life Insurance Company), in case of Government employees the annuity should provide for pension for the lifetime of the employee and his dependent parents and his spouse at the time of retirement. The individual would receive a lump-sum of the remaining pension wealth, which he would be free to utilize in any manner. Individuals would have the flexibility to leave the pension system prior to age 60. However, in this case the mandatory annuitization would be 80% of the pension wealth.

Architecture of the New Pension System
(iv) It will have a Central Recordkeeping and Accounting (CRA) infrastructure, several Pension Fund Managers (PFMs) to offer three categories of scheme viz. option A, B and C.
(v) The participating entities (PFMs & CRA) would give out easily understood information about the past performance, so that the individual would able to make informed choices about which scheme to choose.

Ministry of Finance
Department of economic affairs ECB and PR division
Resolution F.No.5/7/2003-ECB & PR, dated 10.10.2003
RESOLUTION

F.No.5/7/2003-ECB & PR – The Government approved on 23rd August, 2003 the proposal to implement the budget announcement of 2003-04 relating to introducing a New Re-structured Defined Contributory Pension System for new entrants to Central Government Service, except to Armed Forces, in the first stage, replacing the existing system of defined benefit pension system. The new system will also be available, on a voluntary basis, to all persons including self-employed professionals and others in the un-organized sector. However, mandatory programmes under the Employees Provident Fund Organization (EPFO) and other special provident fund would continue to operate as per the existing system under the Employee Provident Fund and Miscellaneous Provisions Act, 1952 and other Special Acts governing these funds.
Whereas the Government are satisfied that pending the enactment of a comprehensive legislation it is necessary to constitute and make operational an interim body as a precursor to the proposed Statutory Authority, with which the interim body would be ultimately merged, or which it will be converted into when the later is constituted;
Now therefore the Government of India do hereby constitute the interim Pension Fund Regulatory and Development Authority (PFRDA) under the overall administrative control of Ministry of Finance.

(i) The chairman of PFRDA and other members – Two full time and two part time – will be appointed as per term and condition given in Annexure-I
(ii) The PFRDA shall regulate and develop the pension market. PFRDA will develop its own funding stream based on user charges. Such additional functions as may be considered necessary to the interim PFRDA may be assigned to enable it to effectively regulate, promote and ensure the orderly growth of the pension market.
(iii) The interim PFRDA is to be headed by a Chairman with the status of not less than a Secretary to Government of India and would be appointed by the Central Government. Other members of the interim body, not exceeding four in number, of home more than two shall serve full time, shall be selected by the Central Government from amongst persons having experience and knowledge in Economics, Finance Legal and Administrative Matters with one person from each discipline. The Chairman can be from any of the above disciplines.

(iv) The Chairman of the PFRDA shall have appropriate powers to discharge the functions of the PFRDA effectively. For this purpose the PFRDA shall provide itself with suitable supporting staff and raise adequate resources.
(v) The Government will provide adequate grants for meeting the expenses incurred by the PFRDA.
(vi) Subject to the overall directions and guidelines of the Government, PFRDA shall:-
(a) Deal with all matters relating to promotion and orderly growth of pension market;
(b) Propose comprehensive legislation for the purpose indicated Above; and
(c) Carry out such other functions as may be delegated to the authority for the purposes indicated in (a) and (b) above
(vii) The PFRDA shall be free to determine its own procedure and will have powers to call for records, returns, notes, memoranda, data or any other material relevant to its working from official and non-official bodies and also hold discussions with them.
(viii) The PFRDA will have its headquarter in Delhi and submit periodical reports to Government on various aspects of the pension sector and all such other specific mattress as may be called for by the Government from time to time.

Annexure-I

TERMS AND CONDITIONS OF APPOINTMENT OF CHAIRPERSON AND MEMBERS OF INTERIM PENSION FUND REGULATORY AND DEVELOPMENT AUTHORITY (PFRDA)

(a) Tenure:

The Chairperson and every member shall hold office for a period of two years or till a statutory PFRDA is in place, whichever is earlier. However, Chairman and Members will be eligible for re-appointment under the statutory PFRDA for a further term of three years or till they have attained the age of sixty five years or sixty two years respectively, whichever is earlier.

(b) Eligibility for Re-employment:

Chairperson or a Member would not be eligible for Re-employment under the Central Government or anybody/ authority substantially financed by the Central Government unless he has cooled off for a period of two years. Similarly, for two years no Chairperson or Member would be eligible to take up private employment after demitting office, in the organizations/ Conglomerates/ Associates that fell within the operational jurisdiction of the concerned Regulatory Authority. A full time member will serve all connections from the regulated entities. Both full-time and part-time members will declare particulars of employment and shareholding in a regulated entity of the immediate family members i.e. spouse, dependent children and parents.
(c) pay:

A Government servant, if appointed as Chairman, shall receive pay as admissible to Secretary to the Government of India. The pay will be fixed in accordance with the prevailing order, i.e., pay limit minus pension etc. An official of Public Sector Undertaking (PSU), if appointed as Chairman, shall draw the last drawn play in the PSU. A person from a private sector, if appointed as a Chairman, shall draw the pay as decided by the Government. A Government official, if selected as a Whole-time Member, shall receive pay as admissible to the Additional Secretary to the Government of India. An official of Public Sector Undertaking (PSU), if selected as a Whole-time Member, shall draw the last drawn pay in the PSU. A person from a private sector, if selected as a Whole-time Member, shall draw the pay as decided by the government. A part-time member will be entitled to a sitting fee to be decided by the Government.

(d) Pension: The Chairperson and Members would participate in the individual retirement account type New Pension System based on defined contribution.

(e) DA & CCA:

The Chairperson and Members shall be entitled to Dearness Allowance and City Compensatory Allowance at the rate admissible to officers of equivalent pay in the Government.

(f) LTC, TA & DA:

Travelling Allowance and Daily Allowance on tour shall be paid to the Chairperson and Members as applicable to Government Servant drawing that basic pay. They would also be entitled to facility of temporary Government accommodation in Guest Houses/ Inspection Bungalows under the control of Central Government, wherever applicable, on payment of normal rent at out-stations, of the class to which Government Servants of equivalent pay are eligible.

(g) Visits Abroad:

Official visits abroad by Chairperson and any Member up to 15 days would be undertaken without any Government approval. However, the visits beyond 15 days in a year but be undertaken only in accordance with the Government order as applicable to offices of equivalent grade in Government of India. In regard to official delegations abroad in which both the administrative Secretary and the Chairperson or Member of the Regulatory Authority are included, the Secretary would lead the delegation. For domestic tours the Chairperson would keep the Secretary of the administrative Ministry/ Department informed.

(h) Accommodation:

The Chairperson and Members of PFRDA will be entitled to hire accommodation from the market within a radius of 8 Kms. from the office and the maximum cost admissible for this arrangement, would not exceed Rs.2500 per sq. ft. If a Government employee is appointed who has already been allotted of Government accommodation, then he will be entitled to retain the same after obtaining approval at appropriate level.

(i) Sumptuary Allowance:

The Chairperson and Members would be entitled to Sumptuary Allowance as decided by the Government.

(j) Medical Facilities:

The Chairperson and Members shall be reimbursed the actual premium paid to purchase the domestic medical insurance cover.

(k) Transport:

The Chairperson and Member shall be entitled to official cars as admissible to officers in the equivalent rank.

(l) Status:

Chairperson and Members would not be accorded Ministerial status and the previous status of the appointee shall not be treated as a precedent for determining the status accorded to Chairperson/ Member. In exceptionally meritorious cases the Ministry of Home Affairs would be consulted, along with full justification which would approach the Standing Committee of Secretaries, wherever necessary, as laid down in Cabinet Sectt. Instructions No.99/1/5/95 Cab, dated November 16, 1996.

(m) Leave:

A Chairperson or Member would be entitled to 30 days of Earned Leave for every year of service. The payment of leave salary during leave shall be governed by Rule 40 of CCS (Leave) Rules, 1972. A person would be entitled to encashment of 50% of Earned Leave to his credit at any time. There will be no leave encashment of Chairperson and Members employed from the private sector.

(n) Administrative and Other Residuary Matters:

Administrative matters relating to the operations of PFRDA or the conditions of service of the Chairperson and a Member, with respect to which no express provisions has been made in these instructions, shall be referred in each case to the Central Government for its decision and the decision of the Central Government thereon shall be binding on PFRDA.