The National Pension System (New Pension System) for Central and State Government employees appointed on or after 01-01-2004 is unable to solve the Old Age Social Security of the employees. It has many drawbacks.
(1) It is violative of the Article 14 (Right to Equality) of the Indian Constitution as it differentiates among equals and giving more benefits to some employees and less to others. It differentiate the employees appointed before 01-01-2004 and those appointed on or after 01-01-2004.
(2) It is not inflation indexed. Thus the pension purchased at the time of retirement may not be sufficient at a later age.
(3) Family Pension in case of unfortunate death of the employee is not available. More over the accumulated wealth will be too less to support a longer phase of the family and children.
(4) Pension Commutation is not available in NPS
(5) The withdrawal from NPS is taxed at the time of retirement whereas the PF is not taxed i.e. it is on EEE system
(6) In case of premature withdrawal, the employee has to invest 80% of the accumulated fund to purchase an annuity and only 20% of the fund is given in hand. Thus the employee may not achieve the long term financial goals from this accumulated fund of 20%
(7) The salary of the government employees have been determined by the successive Pay Commissions taking into considerations the Pensionary Benefit also. Hence abolishing the Old Pension System will lead to differentiation among employees.
(8) There is no change of employment of the government employees from Government sector to Private Sector. An employee joins government service and continue with it throughout his/her career. Hence the defined Contributory Pension System is not suitable for the government employees as it was stated in the vision document of the New Pension System.
(9) The contribution in NPS is linked to inflation but the benefit is not. It will lead to a situation where old age pensioners getting lesser pension compared to the new pensioners of the same service profile.
(10) There is no comprehensive and Life Time Medical Insurance of the employees or pensioners. The expenditure on Medical Facilities will increase with age.
(11) NPS may lead to corruption in the organization as the employees may feel income insecurity for their retired life.
(12) NPS for the government employees is against the constitution of India as the constitution of India speaks about the Welfare State.
(13) Pension is a right, not a bounty or gratuitous payment. The payment of pension does not depend upon the discretion of the Government but is governed by the rules and a government servant coming within those rules is entitled to claim pension. It is held in a judgement of the Supreme Court of India in D S Nakara and others Vs The Union of India 1983 AIR 130. It was also held that the pension payable to the government employees is earned by rendering long and efficient service and therefore can be said to be deferred portion of the compensation for the service rendered. The pension also has a broader significance in that it is a social welfare measure rendering socio-economic justice by providing economic security in old age to those who toiled ceaselessly in the hey day of their life. Pension as a retirement benefit is in consonance with and in furtherance of the goals of the constitution of the welfare state.
(14) It was further held that "A pension scheme consistent with available resources must provide that the pensioner would be able to live - free from want with decency, independence and self respect and at a standard equivalent at the pre-retirement level. We owe it to them and ourselves that they live, not merely exist."