Friday, May 1, 2009

New Pension Scheme

For faculty who joined IISc (or IITs or any other government institution) on or after 1.1.2004, the new pension scheme would be applicable. This was notified by the government effective today. The new scheme will be a defined contribution scheme as against the present defined benefit scheme. This will be the best product for (really) long term pension schemes. Also, anyone (as in not government employees) can enroll in these pension schemes. Further details are available here.


subramaniam said...

Cannot agree completely! Consider these:

a) The gains at end of the term is taxable(at the end of the really long term that sum will be really huge), as opposed to mutual funds that are capital gains tax free for long term.

b) There is no pension as such in NPS. Only that with the accumulated sum(atleast 40%) one has to buy a pension plan from any of the designated players.

Big deal! I can do this myself with what I save. Especially, it has nothing for non-public employees.

On the positive side, unlike the earlier scheme, the govt. makes a real contribution in NPS (with regard to govt. employees).


Anonymous said...

This means the newly joined IISc faculty (or any other govt. employee) will not get any 'real' pension as we know it today. You get a pension based on what you contribute from your salary. The downside is the net salary of the new faculty takes a dip (depending on the amt. contributed) compared to those in the same cadre who joined before 1-1-04. The lifelong pension was one of the strong reasons for joining IITs/IISc. Now that the pension scheme is just like any other pvt. company - and the fact that pvt. companies pay several times more at senior levels (eg. GE etc.) - many fence sitters will be all the more inclined to join pvt. sector.

Giri@iisc said...

Dear Anon,

If your choice between IITB and GE depended on pension and not whether to do academic work or industrial research, what I can say?


Anonymous said...

Dear Sir,

I meant to highlight one of the not-so-publicised aspect - that one of the two major attractions of a central govt. job, the old pension scheme no longer holds (other being job security). This was indeed a major benefit (In kerala, people retire at 55, keeps getting pension at 90) and people look at jobs from the benefit point of view. Without this, govt. jobs look far less attractive in terms of the total benefits compared to pvt. sector. The job security aspect, i think at least in the present, is not a major concern for highly qualified people, thanks to the dearth of talent.

Regd. my choice; my (hypo.) choice between IITB and GE would not *just* depend on pension as you say, but would for sure, depend on the total benefits. And for many practical people - the choice is not just black & white - like acad res. vs industrial res., but remuneration/benefits too factors in the decision making and I am not ashamed to say this. And I don't think most people are not specially cut out for either research or industry - and can handle the challenges, be in industry or acad. Given these, I would't be inclined to join IITB.

Giri@iisc said...

Dear Anon,

One need not be ashamed at considering remuneration as one of the factors for making a decision. But consider this for a person with a Ph.D in engineering with 1-2 years experience.

Starting salary in IIT: 6 lakhs
Starting salary in industry (MNC): 14-18 lakhs

If one saves the difference in salary (Rs. 8 lakhs per year) and invests in a fixed bond, the interest that one will get will be higher than the pension given by IIT irrespective of the old or new pension scheme.