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Pension Schemes in India - You Must Know

A major part of pre-retirement savings is invested in government securities that are either directly or indirectly linked with the stock market.
Pension Schemes in India - You Must Know

A major part of pre-retirement savings is invested in government securities that are either directly or indirectly linked with the stock market. An employee participates in the Employees’ Pension Scheme on the basis of the amount of his or her earnings during income years.  These are the years from when an employee first starts working until he or she retires from paid employment, dies, or leaves the State.  The normal pension age for earnings-related pension benefits from the Employees’ Pension Scheme is 58 years with a minimum of ten years of contributions The pension system has been in operation since April 1, 1953. A statutory entitlement to a retirement benefit is provided to any member who has completed at least fifteen years of service and contributes to the Fund during this. The retirement benefits are payable after 62 years of age. Those leaving service early - up to the statutory retirement age - may be entitled to a reduced benefit; however, all members have the same maximum benefits if they meet certain conditions. In 1972 and 1981, respectively, the Central Civil Service Pension Scheme and the Civil Service Provident Fund were formed as required plans for civil personnel. Only current central government personnel are now eligible for any of the two programs. The Civil Service Pension Scheme is a pay-as-you-go, unfunded defined benefit plan. While the respective company contributes 8.3 percent and the government adds 1.16 percent, the employees make no contributions. Ten years of service are required, and a person must be 58 years old to be eligible for a pension. The maximum benefit is 50% of the final payment, and a lump sum withdrawal of 1/3 of the pension value is permitted. State government civil servant pension plans typically follow a similar format.

The Civil Servants Pension

The Civil Service Pension Scheme and the General Provident Fund are available to civil servants who began working before 2004. Both of these dates all the way back to establishments in 1972 and 1981. Employees made no contributions to the defined benefit scheme, and the state's general budget covered the cost of the pension. The minimum service requirement for receiving a pension was ten years, and the pensionable age was 58. The monthly pension for a retired employee was equal to half of his or her final wage. This scheme was replaced by the National Pension System commencing in 2004 for new public service personnel due to the significant financial load it was imposing on the government's budget. The Pension Fund Regulatory and Development Authority (PFRDA), which was established by an Act of the Indian Parliament, manages and regulates the defined contribution National Pension System (NPS). The decision by the Indian government to discontinue defined benefit pensions for all new hires after January 1, 2004, led to the establishment of the NPS. The employer matches the employee's contribution, which amounts to 10% of the employee's gross income. At the official retirement age, the employee has the option to withdraw 60% of the total as a lump payment and must purchase an annuity for the other 40%, which could be used to pay a monthly pension. The system aims to reach a target of 50% of the employee's previous wage. All civil servants are now required to use this system, while others may opt-out. The employee must contribute a minimum of 6% of his gross salary to the General Provident Fund Scheme in order to receive the guaranteed return of 8%. When the employee retires, he or she can take the lump sum payment.

The National Social Assistance Scheme

The National Social Assistance Scheme is a government scheme safety net restricted to the elderly impoverished and disabled people who are living below the official poverty line which was first introduced as a non-contributory retirement plan in 1995. It is supported via general taxation and is intended for individuals between the ages of 60 and 65 who have not been underpaid employment due to medical reasons or caregiving responsibilities. A person must be at least 60 years old and living in poverty in order to be eligible.  

The Employees’ Provident Fund Organization

The Social Security system in India, which provides benefits to all employees in the public and private companies, incorporates this compulsory program. It is managed by the Employees' Provident Fund Organization, a social security organization (EPFO). In this system, an employee contributes 10 to 12 percent of his monthly salary, his employer matches that amount, for a total contribution of 20 to 24 percent of the employee's gross salary, and the state adds another 1.16 percent, for a total contribution of 25.16 percent of the employee's total income. The mandatory provident fund, mandatory pension plan, and mandatory disability and life insurance program all benefit from the contributions. Once the employee reaches the legal retirement age, they can receive the cash payment they contributed to their provident fund as well as any interest accrued. The dependent receives a monthly stipend for the rest of their lives in the event of death or permanent incapacity while at work. The majority of retired workers choose lifelong annuities or pension plans from government banks or insurance agencies with a lump-sum payment, which gives them a monthly retirement income that is equivalent to 50% of their last income for a lifetime.

The Pradhan Mantri Shram Yogi Maan-Dhan

The Pradhan Mantri Shram Yogi Maan-Dhan (PMSYM) is a government program for the social security of unorganized employees and the protection of the elderly. It was introduced by the Indian government in February 2019 to offer unorganized workers an assured pension of 3,000 (US$38) per month.   A number of private corporations also offer their employees flexible private pension schemes.


There is no denying that pension plans, which can be classified in several ways depending on the features and features of the plan, are a much safer type of investment. However, the Indian Pension system is suffering from a confidence crisis which is affecting the Indian pension system as a whole. The existing system's economic, demographic, and labor market patterns are shifting in unfavorable ways. Therefore, in order to revive the pension system, regulators need to adopt a fresh perspective and create new mechanisms.

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