7th Pay Commission: Why it's advisable for Central Government Employees to avoid putting money in PPF account

7th Pay Commission Report: After the 7th CPC report recommendations were implemented by the central government, various changes have taken place in the last four years. The Government has now given the central government employees an option of one-time switch from NPS (National Pension Scheme) to Old Pension Scheme (OPS) under the Central Civil Services (Pension), 1972 rule. Apart from this, the central government employees will have to contribute in PF account and the GPF account from monthly salary, which is mandatory. This rule has been existing before the implementation of the 7th Pay Commission and in the 7th CPC, the mandatory monthly deduction in GPF and PF has been maintained. The objective of this mandatory monthly contribution in the PF and GPF is to create a huge money corpus when the central government employees retires.

As per the latest Small Saving Scheme interest rate announced, PF rate of interest is 8.5 per cent for April to June 2020 quarter while for the GPF (General Provident Fund) the interest rate given is 7.1 per cent. By having a look at the recent equity returns, one would be highly happy with one's money being parked in the GPF and PF for long-term and meed their retirement goals.

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However, apart from these mandatory investments, Central Government Employees do make some investments to save income tax and it has been found that majority of the central government employees have Public Provident Fund (PPF) account, either in bank or in post office. Since, GPF also gives 7.1 per cent guaranteed return, is it advisable fo the central government employees to open PPF account?

Speaking on PPF vs GPF; SEBI registered tax and investment expert Jitendra Solanki said, "When an earning individual is a central government employee, he or she is getting mandatory monthly deduction of PF, GPF and Gratuity. In that case, these three would together make a good corpus of money that will help the central government employee to meet one's financial requirements post-retirement. But, opening a PPF account to meet other financial goals might not be a wise decision as he or she is already availing the GPF which also gives same 7.1 per cent assured return. In my opinion, the Central Government employee should first switch from the NPS to OPS because it would help the central government employee to fix one's pension by addressing the rise in inflation during the central service period."

Standing in sync with Solanki's views; another SEBI registered tax and investment expert Manikaran Singhal said that NPS is an annuity plan and it does't assure a guaranteed pension. So, one should first make a switch from the NPS to OPS and then open a NPS account taking 50:50 debt and annuity option. He said that by opening NPS account instead of PPF with this 50:50 option, the central government employee will be able to garner 8 per cent return in the debt N PS account while in annuity NPS account, one can expect at lest 12 per cent return in the long run. So, together they will make 10 per cent (4 +6 = 10) return in the long run, which is 2.9 per cent higher than the PPF returns.