Press Information Bureau

Government of India

Ministry of Finance

13-December-2011 16:51 IST

New Pension Scheme (NPS) is a defined contribution scheme, its pay out depends upon the amount of contribution and the growth on the investment over a period of time for an individual while defined benefit schemes pay out is defined and is based on salary and number of years in service etc. at the time of retirement of an individual.

At the time of normal retirement after attaining 60 years, the subscriber can withdraw 60% of the accumulated wealth and will be required to invest remaining 40% of the accumulated wealth to buy a life annuity from insurance company approved by Insurance Regulatory and Development Authority (IRDA). The mandatory provision of annuitisation will be invested to buy life annuities as per various options available to him. The amount of annuity varies depending upon the option selected by him. Registration of ASPs (Annuity Service Providers) is under process and as soon as they get registered, other details will be made available.

In old pension scheme government pays pension after retirement as its liability while in NPS government co-contributes to employee during his service period to build up a corpus on which annuities will be paid.

This information was given by the Minister of State for Finance, Shri Namo Narain Meena in written reply to a question in the Rajya Sabha today.

DSM/SS/Hb/SL

Mandatory annuitisation requirement restricts lump sum withdrawal at retirement; remaining corpus must purchase life annuity from approved insurers. New Pension Scheme is a defined contribution arrangement where retirement payout depends on contributions and investment returns; at retirement a portion of the corpus is withdrawable while the remainder is subject to a mandatory annuitisation requirement to purchase life annuities from insurers approved by the Insurance Regulatory and Development Authority, with annuity levels depending on options chosen.