Government Introduces Unified Pension Scheme Amid Political Backdrop

New Delhi : The Union Cabinet, led by Prime Minister Narendra Modi, has approved the Unified Pension Scheme (UPS), a significant move amidst rising discontent among government employees regarding the New Pension Scheme (NPS). The Opposition has capitalised on this discontent, with states such as Himachal Pradesh, Rajasthan, Chhattisgarh, and Punjab reverting to the Old Pension Scheme (OPS) in recent years.
This new pension initiative comes at a crucial time, ahead of upcoming Assembly elections in Jammu & Kashmir, Haryana, Maharashtra, and Jharkhand. The UPS is positioned as a major political development in these states, where the election schedules for Maharashtra and Jharkhand have yet to be announced.

Key Features of the Unified Pension Scheme

Assured Pension: Offers 50% of the average basic pay over the last 12 months prior to retirement for those with a minimum of 25 years of qualifying service. A proportionate pension is provided for shorter service periods, with a minimum requirement of 10 years.

Family Pension: Guarantees 60% of the employee’s pension to the family in case of the employee’s death.

Minimum Pension: Ensures a minimum pension of ₹10,000 per month for retirees with at least 10 years of service.

Inflation Indexation: Applies to the assured pension, family pension, and minimum pension, with adjustments based on the All India Consumer Price Index for Industrial Workers (AICPI-IW).

Superannuation Benefits: Includes a lump sum payment at the time of retirement, in addition to gratuity. The payment is calculated as 1/10th of monthly emoluments (pay + DA) for every completed six months of service.

The NDA government’s introduction of the UPS marks a reversal of a 21-year-old pension reform introduced by the Atal Bihari Vajpayee government. This new scheme closely mirrors the Old Pension Scheme by providing government employees with a lifelong monthly benefit of 50% of their last drawn pay. The UPS also promises periodic dearness relief adjustments in line with inflation trends and offers additional benefits such as a family pension, a superannuation payout, and a minimum pension threshold.
State governments have the option to adopt the UPS framework, which is set to take effect on April 1, 2025. However, a key distinction between the OPS and UPS is that the OPS was unfunded, with no contributions required from employees or employers. The UPS, on the other hand, is a contributory scheme, requiring employees to contribute 10% of their salary, while the government contributes 18.5%. According to Finance Secretary Mr. Somanathan, the government’s contribution rate may be adjusted periodically based on actuarial assessments of funding needs. The NPS will continue as an option, but employees who joined after 2004, including those already retired, may switch to the more generous UPS.


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