In a year in which benchmark indices are up close to 30%, Central and State Government subscribers to the National Pension System have gotten only 6.62% and 6.34% respectively on Central and State Government NPS plans.

This is far below what their private sector NPS counterparts would have received, and even lower than the EPF and PPF subscribers. What gives?

The NPS Structure

The NPS is mandatory for central government employees who joined service after 2004. It has a special plan for central government employees and for state government employees. Their money is split equally between three public or semi-public sector asset managers – LIC, SBI and UTI Pension Funds. There are also three asset classes in the NPS – equities, government bonds and corporate bonds.

However, for government employees, asset managers can only invest a maximum of 15% of this pension money in equities. As a result, these subscribers are stuck in mostly low-yielding bonds, issued by, you guessed it, the Central and State Governments. Their private sector counterparts (under the all-citizen model) on the other hand are able to invest up to 50% in equities. This can go further up to 75% in the NPS Lifecycle Funds, which automatically change allocation based on the subscribers’ age.

We conducted a study comparing NPS returns for both government and private sector subscribers for the past one, three and five years using returns by the same set of fund managers. In one scenario we assumed that a private sector subscriber allocates 50% to equities, 25% to government bonds and 25% to corporate bonds (moderate subscriber).

In another scenario, we assumed a private sector subscriber allocation of 25% to equities, 50% to government bonds and 25% to corporate bonds (conservative subscriber). In both cases, for all time periods except one, the private sector subscriber won hands down over his government counterpart. Have a look.

Govt employee NPS Vs Private sector NPS Performance

Type  1 year   3 years   5 years 
Central Govt 6.62 8.71 9.77
State Govt 6.34 8.7 9.8
Private (Moderate) 16.92 9 11.95
Private (Conservative) 9.81 8.6 10.37

Source: Value Research, Data as on 23/01/2018. Returns in %.

The Pension Funds Regulatory Development Authority (PFRDA) which regulates the sector has asked for central government employees to be given parity with their private sector counterparts. However, the government has not acted on this request so far. As time passes, government employees are likely to see their pensions fall further and further behind.

Neil Borate

Neil Borate is Deputy Editor, RupeeIQ. He can be contacted at