Can Employers Contribute to Both NPS and FPF? Seeking Guidance on Pension Schemes

Could you please confirm if an employer can contribute to two government pension schemes: the "New Pension Scheme" and the "Family Pension Fund of RPFC"? I read somewhere that you have to exit from RPFC if you want to join NPS as a corporate member on behalf of your employees.

Who is not covered by the NPS?

According to the PFRDA website, you are not covered by the NPS if:

1. You are already covered by the Employees Provident Fund and Miscellaneous Provisions Act, 1952, and any other special Acts governing these funds, or
2. You joined Central Government service before 01 January 2004, or
3. You are an employee of the Indian Armed Forces (Army, Navy, and Air Force), or
4. You are employed in a Department or in a Post under which you are not eligible to receive a pension from the Consolidated Fund of India.

Link: http://pfrda.org.in <link updated to site home>

Request learned members to guide on this:

1. Is it possible to join both schemes simultaneously and take tax advantages (Sec 80C and 80 CCD)?
2. What is the procedure to quit FPF, and what would happen to the balance in the accounts of members with FPF? Will it get transferred to the NPS Account?
3. Which scheme is better in terms of risk, pension, and tax benefits?

Thank you in advance for your time!

Thanks & Regards,

Sukhvinder Singh

Please do not confuse the New Pension Scheme with the Family Pension Fund/Scheme. There is no Family Pension Scheme/Fund in existence as of today. When the New Pension Scheme was implemented in 1995, the Family Pension Fund was merged with this amount.

As you have asked about tax exemption, please note that whatever amount you are contributing towards PF & NPS up to 1 lakh per year is exempted under 80C.

My understanding is that both schemes are different. The Employee's Pension Scheme, 1995, is part of the Provident Fund where 8.33% of the employer's contribution (with a ceiling of Rs. 6500/- as wage and Rs. 541/- as contribution) gets deposited into the FPF account, and the balance goes into the Provident Fund. Whereas, the NPS was introduced with effect from 01 January 2004. The initial intention of NPS was to cover government employees and workers of unorganized sectors. NPS has been made available to every citizen from 1st April 2009 on a voluntary basis.

More details are available at the official website for NPS: http://pfrda.org.in

NPS is good for tax saving as under section 80CCD(1), the employee's contribution is exempted (within the overall limit of Rs. 1 Lac under section 80C). Also, employer contributions (up to 10% of Basic+DA) will be allowed as a deduction under section 80CCD(2) with effect from FY 11-12.

When I checked with their office, they replied that if you are covered by FPF (RPFC), you will not be eligible for NPS. But a few days ago, I read an article in ET that corporates are joining NPS.

There is a tax advantage in the initial stage as well as a good pension amount at retirement since the contribution would be greater than FPF's Rs. 541/- per month. However, since this is a market-driven scheme, the risk is also greater.

That's why I was keen to know if there is any change in status. Can we opt for both options? And if a choice has to be made between the Employee's Pension Scheme and NPS, which would be better? Should we stay with RPFC or switch to NPS?

Thanks for your time!

Regards,
Sukhvinder Singh

Dear employee, the pension scheme is better, and you cannot be covered under this new scheme. It has been implemented for the unorganised sector, where I feel it is applicable to those employees whose PF is not deducted.

Thank you for the reply. Also, I think we should wait for a couple of years to observe the performance of NPS, even if the government allows companies to join the scheme if they exit from EPF.

Regards, Sukhvinder Singh