Government introduces Unified Pension Scheme, offering guaranteed pension benefits for central employees

The Union Cabinet on August 24 approved the Unified Pension Scheme (UPS) as a decision that promises to significantly improve the retirement benefits of central government employees.

This new pension system guarantees a 50% assured pension of the average salary, particularly benefiting those who joined government service post-January 1, 2004, under the previous National Pension System (NPS).

This move comes as a response to longstanding demands from government employees, especially in light of the upcoming assembly elections in Haryana and Jammu and Kashmir.

The UPS is designed to provide a more secure retirement, with a minimum qualifying service requirement of 25 years.

For those with a shorter tenure, down to a minimum of 10 years, the pension will be proportionate to their service duration, according to Information and Broadcasting Minister Ashwini Vaishnaw.

One of the key highlights of the new scheme is the assured minimum pension of Rs 10,000 per month for retirees who have completed at least 10 years of service.

This policy is set to impact around 23 lakh central government employees initially, with the potential to expand to 90 lakh if state governments opt into the scheme.

Vaishnaw further elaborated that the UPS includes several other benefits, such as a guaranteed family pension for the spouse of a deceased employee, inflation indexation on pensions, and family pensions, ensuring that the purchasing power of retirees remains stable over time.

Additionally, the scheme will provide Dearness Relief (DR) tied to the All India Consumer Price Index for Industrial Workers (AICPI-IW), mirroring the benefits available to currently serving employees.

At the time of retirement, employees will also be eligible for a gratuity payment and a lump sum amount equivalent to one-tenth of their monthly emolument (salary plus Dearness Allowance) for every completed six months of service.

This is a significant enhancement from the NPS, which was based purely on the contributions made by employees and the government, without any guaranteed returns.

This transformation of the NPS into the UPS is seen as a response to the growing demands for a more stable and predictable pension system. Several non-BJP states have recently moved to reinstate the Dearness Allowance-linked Old Pension Scheme (OPS), further pressuring the central government to rethink the NPS.

The OPS, which guaranteed 50% of the last drawn salary as a pension with regular increases tied to DA hikes, was widely popular but was criticized for its unsustainable financial burden on the government.

In contrast, the UPS aims to strike a balance by offering guaranteed benefits while maintaining a contributory structure.

The UPS will be implemented starting April 1, 2025, and will cover all those who are retired or set to retire under the NPS until March 31, 2025.

These retirees will also be eligible for arrears under the new scheme. Importantly, employees opting for the UPS will not face an additional financial burden, as their contribution rate will remain at 10%, while the government's contribution will rise from 14% to 18.5%.

Finance Secretary TV Somanathan, who will soon assume the role of Cabinet Secretary, detailed that the government will bear an estimated additional cost of Rs 800 crore for arrears and Rs 6,250 crore annually for the increased contribution rate.

He also noted that state governments that choose to adopt the UPS for their employees will be responsible for covering the additional costs associated with the assured pension.