The Union Cabinet, chaired by Prime Minister Narendra Modi, approved the Unified Pension Scheme (UPS) on August 24, 2024, marking a significant overhaul of the pension system for central government employees.
The government said the new scheme would benefit approximately 23 lakh employees.
The scheme will be effective April 1, 2025. Employees have the option to choose between the NPS and the new UPS, which provides flexibility based on individual financial planning and retirement expectations. Let’s look at the purported benefits.
Assured Pension
Employees with a minimum of 25 years of service will receive a pension equivalent to 50% of their average basic pay drawn over the last 12 months before superannuation.
The pension will be proportionately reduced for those with less than 25 but more than 10 years of service.
Family Pension
In the event of an employee’s demise, their family will be entitled to a pension amounting to 60% of the pension the employee was receiving immediately before death.
Minimum Pension
Employees who have served for at least 10 years are guaranteed a minimum pension of ₹10,000 per month, ensuring a basic level of financial support regardless of their salary during service.
Inflation Indexation
The pension, family pension, and minimum pension are all subject to inflation indexation, ensuring that the pension’s value does not erode over time due to inflation. This adjustment will be based on the All India Consumer Price Index for Industrial Workers (AICPI-IW).
Additional Benefits
Besides the pension, employees will receive a lump-sum payment at superannuation, calculated as 1/10th of their monthly emoluments (pay + DA) for every completed six months of service, without affecting the quantum of the assured pension.
NPS vs UPS
The introduction of the UPS comes after extensive reviews and discussions, reflecting the government’s response to criticisms of the National Pension System (NPS), which did not guarantee a fixed pension amount.
However, the long-term financial implications for the government, especially concerning the sustainability of such a pension scheme amidst India’s demographic dividend transitioning into an aging population, remain a topic of discussion among economists. The government’s move is seen as a balancing act between employee welfare and fiscal responsibility.