New Pension Scheme- Is it a Right Alternate of Old Pension Scheme?

Abstract

The government of India (GoI) in 2004 started a new pension scheme (NPS). It is a Defined contribution plan where employees and employers contribute some percentage of their salary. The amount is invested in financial instruments, such as bonds (debt) and stocks (equity). This scheme has replaced the old pension scheme, a defined benefit pension plan, where the employees receive a family pension after completing certain years of satisfactory services. The case provides an opportunity to analyze the motive of the GoI to move from a defined benefit to a defined contribution plan. Also, the case provides a simulation analysis to estimate the expected corpus and annuity one would expect at the time of retirement.