Unified Pension Scheme (UPS) to Provide Assured Pension, But Adds Financial Strain on Exchequer

The newly approved Unified Pension Scheme (UPS), set to be implemented from April 1, 2025, promises to provide an assured pension to 23 lakh eligible central government employees, adding an annual financial burden of Rs 6,250 crore on the exchequer. Under this scheme, the government’s contribution will rise from the current 14% to 18.5%, while employees’ contributions will remain unchanged at 10% of their basic salary.

The UPS aims to address long-standing demands of government employees by offering a guaranteed minimum pension of Rs 10,000 per month for those with at least 10 years of service. Additionally, it ensures an assured family pension in case of a pensioner’s demise, with dearness relief linked to the All India Consumer Price Index for Industrial Workers (AICPI-IW).

For employees retiring before March 31, 2025, under the National Pension System (NPS), a total arrear of Rs 800 crore will be provided if they choose to switch to the UPS. The scheme, recently approved by the Union Cabinet, is seen as a move ahead of upcoming assembly elections in states like Haryana and Jammu and Kashmir.

The UPS allows employees under NPS to opt in, but once chosen, there is no option to revert. The pension payout will be linked to the corpus accumulated, unlike the NPS, which is solely contributory. Employees with a service length of 25 years will receive a pension amounting to 50% of their average basic pay over the last 12 months before retirement. For those with service periods between 10 to 25 years, the pension will be proportionate.

This move comes amid demands from several states to revert to the Old Pension Scheme (OPS), which was linked to dearness allowance, in contrast to the NPS. Despite the shift to NPS since January 1, 2004, some states have been pushing for a rollback to OPS.

Information and Broadcasting Minister Ashwini Vaishnaw highlighted that the UPS ensures dignity and financial security for government employees, aligning with the government’s commitment to their well-being and a secure future. The scheme represents a significant transformation of NPS, integrating features like dearness relief and fixed pension amounts.

The approval of UPS follows a review by a committee set up by the finance ministry last year, tasked with recommending improvements to the NPS while balancing fiscal implications. The UPS is expected to reshape the pension landscape for central government employees, offering enhanced benefits while managing long-term fiscal sustainability.

Source: Economics Times