Centre announces new Unified Pension Scheme ::: During LS polls there was backlash from Govt employees to New Pension Scheme

(No reform .... no good governance ... only freebies, pensions, health insurance and jokes about Reservation!

That's India story more often !)

The scheme guarantees a pension of 50 per cent of the average basic pay drawn over the last 12 months, provided the employee has completed a minimum of 25 years of service.

How will UPS differ from OPS, NPS?  

Coming ahead of the upcoming Assembly elections in Jammu & Kashmir, Haryana, Maharashtra, and Jharkhand, the Modi3.0 led Centre’s announcement of a novel pension scheme is seen as a key political development trying to win the goodwill of the middle class and the poor.

The Union Cabinet on Saturday (August 24) approved the Unified Pension Scheme (UPS) which will provide government employees with assured pension post retirement. The scheme will be effective from April 1, 2025, according to the government announcement.

This development comes amid significant backlash from government employees to the New Pension Scheme (NPS), which the Opposition has tapped into for political gains. Opposition-ruled states like Himachal Pradesh (in 2023), Rajasthan (in 2022), Chhattisgarh (in 2022), and Punjab (in 2022) have reverted to the Old Pensions Scheme (OPS). 23 lakh government employees to benefit under new pension scheme

New pension scheme to come into force from April 1, 2025

The Centre on Saturday announced a new pension scheme called the Unified Pension Scheme (UPS) in which government employees will get assured pension, family pension and assured minimum pension. The new pension scheme will come into force from April 1, 2025.

The scheme, approved by the Union Cabinet today, guarantees a pension of 50 per cent of the average basic pay drawn over the last 12 months, provided the employee has completed a minimum of 25 years of service. For those with lesser service, the pension will be proportionate.   

"We are proud of the hard work of all government employees who contribute significantly to national progress. The Unified Pension Scheme ensures dignity and financial security for government employees, aligning with our commitment to their well-being and a secure future," PM Narendra Modi tweeted.

About 23 lakh central government employees, who joined service under the National Pension System (NPS), would benefit from the UPS, Railways Minister Ashwini Vaishnaw said.

"Today, the Union Cabinet has approved UPS for government employees providing for assured pension. 50 per cent assured pension is the first pillar of the scheme and the second pillar will be assured family pension," he said.

"There will be an option for employees to opt between the NPS and UPS," he added.

Crucially, the UPS promises retirees a fixed pension amount unlike the NPS. This was one of the major criticisms of the NPS by government employees.

Briefing media, Cabinet Secretary-designate TV Somanathan said the new scheme will be applicable from April 1, 2025. "The benefits of the UPS are applicable for those retired and retiring till March 31, 2025, with arrears," he added.

Under the scheme, there will be a lump-sum payment at superannuation in addition to gratuity and one-tenth of monthly emolument (pay + DA (Dearness Allowance)) on the date of superannuation for every completed six months of service. This payment will not reduce the quantum of assured pension for employees.

Last year, the finance ministry set up a committee under Finance Secretary TV Somanathan to review the pension scheme for government employees and suggest any changes, if needed, in light of the existing framework and structure of the NPS.

The Centre had said earlier that there were no immediate plans to implement the Old Pension Scheme (OPS) for its employees, despite protests in non-BJP-ruled states demanding the implementation of the same.

Several non-BJP-ruled states have decided to revert to the DA-linked OPS and employee organisations in some other states have raised demands for the same.

The OPS is a defined benefit scheme that guarantees half of the last salary drawn as a pension for life, with adjustments based on pay commission recommendations.

In contrast, the NPS is a defined contribution scheme where government employees contribute 10 per cent of their basic salary, and the government matches this contribution with 14 per cent.   

Assured pension: This would amount to 50 per cent of an employee’s average basic pay, drawn over the last 12 months before superannuation for a minimum qualifying service of 25 years. The amount would proportionately go down for a lesser service period, upto a minimum of 10 years of service.  

In the case of superannuation after a minimum 10 years of service, the UPS has a provision of an assured minimum pension of Rs 10,000 per month.

Assured family pension: Upon a retiree’s death, the employee’s immediate family would be eligible for 60% of the pension last drawn by him/her.

Inflation indexation: There would be dearness relief to the above three mentioned pensions, which will be calculated based on the All India Consumer Price Index for Industrial Workers, as is the case with serving employees.

Lumpsum payment at superannuation: This would be in addition to gratuity, and be calculated as 1/10th of monthly emoulment (pay+ dearness allowance) as on the date of superannuation for every six months of service completed. 

Why was the NPS introduced in 2004?

The NPS replaced the OPS on January 1, 2004 as a part of the Centre’s effort to reform India’s pension policies. Those joining government service after the date were slotted under the NPS.

Under the OPS, pension to government employees (both at the Centre and the states) was fixed at 50 per cent of the last drawn basic pay (like it is in the UPS). In addition, there would be a DA — calculated as a percentage of the basic salary — to adjust for the steady increase in the cost of living.