New Delhi: The Union cabinet on Saturday (August 24) approved the Unified Pension Scheme (UPS), that will provide an assured sum of at least 50% of the last 12 months’ average salary as pension to government employees, reversing a 21-year-old pension reform decision brought by the Atal Bihari Vajpayee government in the form of the National Pension Scheme (NPS). The UPS combines the old pension scheme (OPS) by including an assured pension but with a contributory structure (employee and the government) like in the NPS.
The decision comes amid backlash from opposition parties demanding a reversal to the OPS. Several opposition ruled states including Rajasthan, Chhattisgarh, Jharkhand, Punjab and Himachal Pradesh have reversed to the old scheme. In June, central trade unions met Union finance minister Nirmala Sitharaman at a pre-budget meeting and requested that the NPS be scrapped. The government has also informed parliament from time to time that representations have been received from different groups to revert to the OPS but said, as recently in March 2023, in a written reply to Lok Sabha by MoS Finance Bhagwat Karad, that there is “no proposal under consideration of Government of India for restoration of old pension scheme in respect of Central Government employees.”
The decision to introduce the UPS comes ahead of key assembly elections in Jammu and Kashmir and Haryana scheduled for next month, and Maharashtra and Jharkhand later this year.
What is UPS?
The UPS was approved by the cabinet chaired by Prime Minister Narendra Modi and announced at a press briefing by Union minister for information and broadcasting Ashwini Vaishnaw on Saturday.
Vaishnaw said that one of the longstanding demands of government employees had been an assured pension, a “logical” demand which had been taken into consideration under the new scheme.
The scheme includes five pillars: assured pension where retirees will get 50% of the average basic pay drawn over the last 12 months prior to superannuation for a minimum qualifying service of 25 years. This pay is to be proportionate for lesser service period upto a minimum of 10 years of service.
The second pillar, assured family pension, will be at 60% of the pension of the employee immediately before her/his demise.
The third pillar includes assured minimum pension which will be at the rate of Rs 10,000 per month on superannuation after minimum 10 years of service.
The scheme also includes inflation indexation on assured pension, on assured family pension and assured minimum pension.
Under the scheme, dearness relief will be given on the assured pension, assured family pension and assured minimum pension and this will be based on All India Consumer Price Index for Industrial Workers (AICPI-IW) as in case of service employees.
In addition, there will be a lump sum payment at superannuation in addition to gratuity 1/10th of monthly emoluments (pay + DA) as on the date of superannuation for every completed six months of service. This payment will not reduce the quantum of assured pension.
Vaishnaw said that UPS will come into effect on April 1, 2025 and will be available as an option to central government employees and existing NPS/VRS with NPS as well as future employees will have an option of joining UPS.
Under the scheme, the employee contribution shall remain unaltered at 10% of (basic pay + DA) while the government contribution will increase from the present 14% to 18.5%
Following the announcement, Modi in a statement on X said that the scheme “ensures dignity and financial security for government employees, aligning with our commitment to their well-being and a secure future.”
Move from OPS to NPS to UPS
The introduction of the UPS reverses a 21-year-old decision taken by the then Vajpayee government in 2003 and came into effect the following year. The finance ministry informed the Lok Sabha in 2018, that the decision to move to the NPS was “to shift from the defined benefit pension scheme to defined contribution pension scheme i.e. NPS, due to rising and unsustainable pension bill.”
In a reply to the Lok Sabha in 2014, then Union finance minister Arun Jaitley said that the NPS was launched based “on the need for pension reform felt by the Government of India in the year 2003, to meet obligations related to pensions in a sustainable manner.”
“The NPS for government employees is conceived on sound principles involving regular contributions by the employee and the Government, and prudent investment of the corpus under regulatory supervision.
The NPS, in a bid to bring in financial prudence, did away with the assured pension under the OPS which has now been brought back under the UPS.
Under the NPS, the employee would fund their own pension along with a contribution from the government. This was calculated at 10% of the basic pay plus DA by the employee and 14% by the government (increased from 10% earlier).
Significantly, while the assured pension under the OPS was 50% of the last drawn salary+DA, under the UPS it will be 50% of the last 12 months’ average salary+ DA.
Despite bringing in employee contributions under NPS, pension liabilities for both the centre and states have increased in the past three decades. The Indian Express has reported that in 1990-91, the centre’s pension bill was Rs 3,272 cr, and the outgo for all states put together was Rs 3,131 cr. By 2020-21, the Centre’s bill increased to Rs 1,90,886 cr and for states, it increased to Rs 3,86,001 cr.
In April 2023, the Modi government constituted a committee under union finance secretary T.V. Somanathan to review the NPS and ensure fiscal prudence.
Vaishnaw said at the press conference on Saturday that the UPS was recommended by the committee.
“This committee held more than 100 meetings with different organisations and employee associations in nearly all the states. Inputs were also taken from state government and state government employee associations,” he said.
U-turn sarkar
The opposition Congress has lashed out at the NDA government and said that the U in UPS stands for “u-turn.”
The ‘U’ in UPS stands for Modi Govt’s U turns!
Post June 4, the power of the people has prevailed over the arrogance of power of the Prime Minister.
— Rollback in the budget regarding Long Term Capital Gain / Indexation
— Sending Waqf Bill to JPC
— Rollback of Broadcast… pic.twitter.com/DJbDoEyl6g
— Mallikarjun Kharge (@kharge) August 25, 2024
In a statement on X, Congress president Mallikarjun Kharge said post June 4, the power of the people has prevailed over the arrogance of power of the prime minister.
“Rollback in the budget regarding Long Term Capital Gain / Indexation, Sending Waqf Bill to JPC, Rollback of Broadcast Bill,Rollback of Lateral Entry.
We will keep ensuring accountability and protect 140 Cr Indians from this despotic government!”
AAP MP Sanjay Singh said that the UPS does not include paramilitary forces, and the OPS should be brought back.
The paramilitary forces have not been included in this scheme because they do not serve for 25 years, which is the primary criterion to be eligible for the UPS,” he said.
“If you have worked for 40 years, every month 10% is deducted in the name of pension, which will be kept by the government and only the last 12 months’ average will be taken and 6 months salary will be given. First you have taken lakhs from employees in the form of deductions. Second, paramilitary forces are kept out of this scheme. This is worse than NPS. This is a betrayal to the government employees. OPS should be reverted to,” he added
“Under UPS, family pension is 60% of pension i.e., 60% of 50%. It means 30% of last pay for 25 years of service at the time of superannuation. For employees with minimum pension of rupees 10,000 it will be 60% of it, i.e., Rs 6,000. Minimum pension of rupees Rs 10,000 applies only to superannuation and not for family pension. But under OPS, family pension is 50% of last pay if the pensioner dies before 7 years after retirement or before 67 years of age. Thereafter family pension will be 30% of last pay. Minimum pension as on 1-4-2025 will be Rs 14,130. But in UPS minimum family pension will be only Rs 6,000,” Tapan Sen, general secretary Centre of Indian Trade Unions (CITU) said in a press release.
Sen added, “In OPS pension/family pension/minimum pension is revised whenever pay commission is implemented while there is no such assurance under UPS. Commutation of pension i.e., withdrawal of 40% pension in advance available in OPS is not available in UPS. For those employees who die or become invalid becoming all class unfit in NPS, OPS is applicable to them already. Employees can opt [for] UPS or NPS, once opted will be final.”
Further, CITU pointed out that “the UPS is based on the continuity of 10% contributions by the employees with the government contribution increased to 18.5% from present 14%.”
“While in NPS the subscriber can take 60% and has to invest 40% in an annuity and get pension, under UPS, [the] entire pension wealth will have to be foregone to the government. In lieu of which [the] government will give 10% of the employee emoluments i.e., basic pay plus DA for every completed six months of service. For 25 years of completed service, the employee will get 5 months emoluments and for 10 years of service, they will get 2 months of pay on retirement as benefit in addition to gratuity,” Sen said.
