Cabinet Approves New Pension Scheme UPS for 23 Lakh Central Government Employees
Srinagar: In a significant move ahead of upcoming assembly elections, the Union Cabinet, chaired by Prime Minister Narendra Modi, approved the Unified Pension Scheme (UPS) on Saturday, offering a major bonanza to approximately 23 lakh central government employees. This new pension scheme, set to take effect from April 1, 2025, marks a transformative shift from the existing National Pension System (NPS), which has been in place since January 1, 2004.
Under the UPS, central government employees will be eligible for an assured pension amounting to 50 per cent of the average basic pay drawn over the last 12 months before superannuation, provided they have a minimum qualifying service of 25 years. For those with shorter service periods, down to a minimum of 10 years, the pension will be proportionate to their years of service.
The scheme also guarantees a minimum pension of Rs 10,000 per month for employees who retire after at least 10 years of service.
In the event of an employee’s death, the spouse will receive an assured family pension, amounting to 60 per cent of the last drawn pension.
Besides, the UPS includes a mechanism for inflation indexation, ensuring that the assured pension, family pension, and minimum pension are adjusted in line with the All India Consumer Price Index for Industrial Workers (AICPI-IW), similar to the dearness relief provided to serving employees.
In addition to gratuity, retirees will receive a lump sum amount equivalent to 1/10th of their monthly emoluments (basic pay plus dearness allowance) for every completed six months of service.
The introduction of the UPS addresses long-standing demands from government employees, particularly as several non-BJP-ruled states, including Himachal Pradesh, Rajasthan, Chhattisgarh, and Punjab, have recently reverted to the Old Pension Scheme (OPS). Under the OPS, retired government employees received 50 per cent of their last drawn salary as a monthly pension, with the amount adjusted for inflation through DA hikes. However, the OPS was deemed fiscally unsustainable due to its non-contributory nature, which placed an ever-increasing burden on government finances.
The NPS was introduced in 2004 by the Atal Bihari Vajpayee government as a more sustainable alternative, requiring both employees and the government to contribute towards the pension fund. However, the NPS was criticised for not offering an assured pension, leading to growing dissatisfaction among government employees.
In response to the backlash against the NPS, Prime Minister Narendra Modi constituted a committee under Finance Secretary TV Somanathan in 2023 to review the pension system. This committee’s recommendations have culminated in the UPS, which seeks to combine the best elements of both the OPS and NPS. The UPS retains the contributory nature of the NPS but introduces the assurance of a fixed pension, mitigating the risks associated with market fluctuations.
The implementation of the UPS is expected to have a substantial financial impact. The government estimates an expenditure of Rs 800 crore for arrears and an additional Rs 6,250 crore annually for the enhanced government contribution of 18.5 per cent (up from 14 per cent) towards the pension fund. However, despite these costs, the UPS is considered more fiscally prudent than the OPS, as it remains a contributory scheme, thereby reducing the long-term pension liabilities of the government.
While the UPS is initially applicable only to central government employees, state governments have the option to adopt the scheme for their employees. If state governments choose to join, the number of beneficiaries could rise to 90 lakh, significantly expanding the scheme’s reach and impact.
The Cabinet’s approval of the UPS represents a significant policy shift aimed at addressing the concerns of government employees and offering them greater financial security in retirement. As the scheme is set to come into effect just before the assembly elections in several states, including Jammu and Kashmir and Haryana, it is likely to have substantial political ramifications as well. With its combination of assured pension benefits and inflation protection, the UPS promises to be a crucial development in the ongoing evolution of India’s pension systems.
(With PTI inputs)
