Unified Pension Scheme: The Indian government, led by Prime Minister Narendra Modi, has approved a groundbreaking Unified Pension Scheme (UPS) for government employees. This new scheme, set to take effect from April 1, 2025, promises to revolutionize the pension system for central government workers and potentially state government employees as well.
Key Features of the Unified Pension Scheme
The UPS introduces several significant benefits for government employees:
- Assured Pension: Employees will receive 50% of their average basic pay from the last 12 months before retirement, provided they have served for at least 25 years.
- Family Protection: A guaranteed family pension at 60% of the employee’s pension upon their demise.
- Minimum Pension Guarantee: A minimum pension of ₹10,000 per month after 10 years of service.
- Inflation Protection: Dearness relief based on the All India Consumer Price Index for Industrial Workers (AICPI-W).
- Lump-sum Payment: Additional payment at retirement, calculated as 1/10th of monthly emoluments for every completed six months of service.
Scope and Impact
The UPS is expected to benefit approximately 23 lakh central government employees. If state governments opt to join the scheme, the number of beneficiaries could rise to around 90 lakh. The government estimates an initial annual cost increase of about ₹6,250 crore, with ₹800 crore allocated for arrears.
Choice for Employees
Central government employees will have the option to choose between the existing National Pension Scheme (NPS) and the new UPS. This choice extends to current NPS subscribers as well, allowing them to switch to the UPS if they prefer.
Background and Development
The introduction of the UPS comes in response to concerns raised by government employees about the NPS, which was implemented for those who joined service on or after April 1, 2004. To address these issues, Prime Minister Modi formed a committee led by Cabinet Secretary TV Somanathan. The committee conducted extensive research, holding over 100 meetings with various organizations and consulting stakeholders, including the Reserve Bank of India and the World Bank.
Expert Opinion
Kuldip Kumar, Partner at Mainstay Tax Advisors, views this move positively, stating that it’s likely to be well-received by central government employees. He notes that the UPS marks a return to the defined benefit pension scheme era, which has been a long-standing demand of many government workers dissatisfied with the NPS.
Potential Challenges
While the UPS offers numerous benefits, it may also present challenges for the government. Kumar points out that this scheme could increase the government’s pension liability, as it won’t be limited to the corpus built by employees over their service period.
Conclusion
The Unified Pension Scheme represents a significant shift in the government’s approach to employee retirement benefits. By offering assured pensions, family protection, and inflation indexation, it addresses many of the concerns raised about the NPS. However, its long-term financial implications for the government remain to be seen. As the implementation date approaches, both current and future government employees will need to carefully consider their options between the NPS and UPS to make the best decision for their retirement future.
source: Unified Pension Scheme approved by PM Modi-led Cabinet; check salient features
