Pension Scheme - Safety Net

The move to introduce the UPS has evoked mixed reactions. Analysts believe its funding will have limited impact on the fiscal math

- SURABHI

IN A MOVE that will cover over 2.3 million employees, the Centre has announced a fresh pension scheme to quell concerns about the uncertainties of retirement incomes under the existing National Pension System or NPS, originally known as the New Pension Scheme.

The Union Cabinet, on August 24, approved the Unified Pension Scheme (UPS) that would provide an assured pension of 50% of the average basic salary drawn over the last 12 months before retirement, for employees with 25 years of service. A minimum monthly pension of ₹10,000 is assured for those who serve the government for at least 10 years.

The scheme, which will kick in from April 1, 2025, would see increased contribution from the Centre at 18.5% of the employee’s basic salary and dearness allowance, as against 14% under the NPS. Employees would continue to contribute 10% of their salary and dearness allowance, as is the case for those who joined service after January 1, 2004, and are covered by the NPS.

The UPS also includes a lump sum superannuation payout along with gratuity benefits at the time of retirement. Former Finance Secretary and current Cabinet Secretary T.V. Somanathan, who also headed a committee to review the NPS, said that over 99% of employees would prefer to switch to the UPS from the NPS as it would prove to be more beneficial. Those part of the NPS since 2004 will also have the option to switch to the UPS.