The Unified Pension Scheme (UPS) for government employees addresses the major concerns of employees but at the same time doesn’t put too much burden on the exchequer. The new scheme, available for government employees under the National Pension System (NPS) framework, addresses three main demands—a pension which is not market-linked; inflation-protected pension; and a minimum assured pension for employees who have a shorter service.
The UPS assures pension that is at least 50 percent of the average of the last 12 months’ salary, guarantees a minimum pension of Rs 10,000 a month, and offers indexation benefit. The new scheme also assures a family pension of 60 percent after the pensioner’s death. A minimum assured pension of Rs 10,000 is available after completion of minimum 10 years of service.
The new scheme would be available for retired employees who were under the NPS. Arrears, if any, will be paid to those opting for the UPS. The new scheme is available to 23 lakh central government employees. If state governments also decide to make this available, then 90 lakh government employees stand to benefit.
The UPS is a middle ground between the NPS and the old pension system, which is a defined benefit plan with the government bearing a large part of the employees’ pension cost. UPS remains a defined contribution plan, in which employees would make a substantial part of the contribution.
Currently, employees contribute 10% of their basic salary towards NPS and the government contributes 14%. Under UPS, the government contribution increases to 18.5% of the employees’ salary. Even with the current NPS structure, an employee with 25-30 years in service can end up receiving a pension which would be 40-50% of their last drawn salary. This means, the UPS might not put too much burden on the exchequer.
The implementation of the scheme would cost Rs 6,250 crore in the first year with arrear payments costing Rs 800 crore. With UPS, the government has managed to win the optics game, at least for now, and douse the anger of government employees without incurring too much financial burden.
What it has also been able to do is pass the buck on state governments – the UPS is available to state government employees too – to implement the scheme, if they so want to. However, the government will have to now manage the narrative in its favour as the demand for reversal to the Old Pension scheme is yet to die down.
