Govt revamps NPS to Unified Pension Scheme; approves guaranteed pension for govt employees

NPS to UPS shift: The Union Cabinet, under the leadership of Prime Minister Narendra Modi, approved a guaranteed pension of 50 per cent of the salary for those who joined service after January 1, 2004, under the National Pension System (NPS).

According to Information and Broadcasting Minister Ashwini Vaishnaw, this scheme is set to benefit 23 lakh central government employees, a number that could rise to 90 lakh if state governments decide to adopt it.

This decision addresses long-standing demands from government employees, especially ahead of the upcoming assembly elections in Haryana and Jammu & Kashmir.

UPS offers secure retirement

The newly approved Unified Pension Scheme (UPS) offers assured pension benefits. Employees who choose UPS will receive a guaranteed pension equivalent to 50 per cent of their average basic pay over the last 12 months before retirement, provided they have completed a minimum of 25 years of service. For those with lesser service, a proportionate pension will be available, with a minimum qualifying service of 10 years.

The scheme ensures a minimum pension of Rs 10,000 per month for those who retire after serving at least 10 years.

Minister Vaishnaw also announced additional features of the UPS, including an assured family pension for the spouses of deceased employees and inflation indexation for the assured pension, family pension, and minimum pension. 

Moreover, Dearness Relief will be provided based on the All India Consumer Price Index for Industrial Workers (AICPI-IW), similar to that given to serving employees.

Upon retirement, employees will receive not just a gratuity but also a lump sum amount, 1/10th of their monthly emolument (basic pay + DA) for every completed six months of service.

Non-BJP states revive OPS

This shift marks a change of the National Pension System (NPS), which previously offered pensions based on contributions from both employees and the government. 

The UPS comes as several non-BJP states have decided to revert to the DA-linked Old Pension Scheme (OPS), prompting employee organisations in other states to demand the same.

The OPS, which provided 50 per cent of the last drawn salary as a pension, were deemed unsustainable due to its non-contributory nature, leading to an increasing fiscal burden on the exchequer.

In response to the need for pension reform, the finance ministry established a committee last year under Finance Secretary TV Somanathan to review and suggest changes to the pension system.

Arrears eligible until 2025

The new scheme will come into effect on April 1, 2025, and will apply to those retiring under NPS until March 31, 2025, who will also be eligible for arrears. Employees opting for UPS will continue contributing 10 per cent of their salary, while the government’s contribution will increase from 14 per cent to 18.5 per cent.

The estimated expenditure for arrears is approximately Rs 800 crore, with an additional Rs 6,250 crore burden on the government for the enhanced contribution. If state governments join the UPS, they will bear the additional costs for their employees' assured pensions.

(With PTI Inputs)