Unified Pension Scheme promises assured benefits

The Centre announced a new guaranteed pension scheme for its employees, offering an assured amount of half their average basic salary drawn over the 12 months preceding superannuation for those completing at least 25 years of service.

The five-pillar Unified Pension Scheme (UPS) will benefit 2.3 million central government employees, information and broadcasting minister Ashwini Vaishnaw said at a media briefing on Saturday’s Cabinet decisions.

The move is aimed at resolving the debate over the old pension scheme (OPS), which several opposition-ruled states have resurrected on the grounds that its more favourable to employees.

Beneficiary numbers under UPS will rise to 9 million if state governments adopt the scheme, the Centre said. Starting April 1, 2025, the new scheme will offer a minimum pension of `10,000 a month and will be inflation adjusted.

The scheme is like the OPS in terms of benefits. However, unlike that fiscally burdensome pay-as-you-go programme, the UPS assured pension will be fully funded each year from the budget and absorbed into it. This will ensure the programme won’t be a burden on future generations, Vaishnaw said.

Those on the current National Pension System (NPS) will have the choice of shifting to the programme. The NPS is a defined contribution scheme that was rolled out on January 1, 2004. It earns employees a retirement corpus and annuity depending on their contributions.

Under UPS, on death of the pensioner, the family will be entitled to 60% of the last pension. Those serving in the government for 10-25 years will get a proportionate assured sum. The pension will be indexed to inflation using the All India Consumer Price Index for Industrial Workers. The scheme will provide a lumpsum payment at superannuation, in addition to gratuity. This will be onetenth of monthly emoluments, including pay plus dearness allowance on the date of superannuation for every six months of service completed, with no reduction in the quantum of assured pension. In 99% of cases, it will be better for employees to shift to UPS from the current NPS, said cabinet secretary-designate TV Somanathan. Those who retired under NPS will also have the option to shift to UPS and will be paid any arrears and interest.

The government will step up its contribution from 14% of salary to 18.5% to ensure the scheme is fully funded. Employees will continue to contribute 10%.

The expenditure on arrears will be Rs 800 crore, while that on the scheme and the additional requirement in the first year of the scheme will be Rs 6,250 crore because of the increase in government contribution, Somanathan said.

The architecture of the scheme is national, but states are welcome to join the programme, he added. State governments will have to fund the scheme for their employees.

The number of people who have retired under NPS is very small, Somanathan added. The scheme is based on the recommendations of a committee set up under Somanathan in April 2023 to look into the pension structure of government employees, amid an intense debate over NPS after Congress-ruled states decided to revert to the old defined-benefit system.

“UPS is fiscally more prudent… This is a funded contributory scheme,” the finance secretary said, adding that the difference is assurance and shielding pensioners from the vagaries of markets.