Unified Pension Scheme Launched, Not a Rollback of NPS, Says Sitharaman

Finance Minister Nirmala Sitharaman has refuted Congress's claims of misinformation, stating that the newly introduced Unified Pension Scheme (UPS) is a distinct pension plan and not a rollback of the National Pension System (NPS). She clarified, "It is not a rollback... it is different from OPS Old Pension Scheme and NPS National Pension System. It is clearly a new package," adding that UPS is designed to be advantageous for most government employees.

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Unified Pension Scheme Details

The UPS, approved by the Union Cabinet on August 24, aims to address concerns about the NPS, which has been in effect since January 1, 2004. The new scheme guarantees employees 50 per cent of their average basic pay over the last 12 months before retirement as a pension for a minimum qualifying service of 25 years. For those with less service, the pension will be proportionate for periods up to a minimum of 10 years.

Under the old pension scheme (OPS), employees received 50 per cent of their last drawn basic pay as pension without any contribution requirement. In contrast, UPS requires employees to contribute 10 per cent of their basic salary and dearness allowance, while the central government will contribute 18.5 per cent. This contributory nature distinguishes UPS from OPS.

Comparing Contributions and Benefits

In the NPS, the employer contributes 14 per cent and the employee contributes 10 per cent. However, the payout under NPS depends on market returns from investments primarily in government debt. Unlike NPS, UPS offers an assured pension of Rs 10,000 per month after a minimum of 10 years of service. This assurance aims to provide more security compared to the market-linked returns of NPS.

Sitharaman expressed optimism that most states would adopt UPS due to its numerous benefits for employees. She also addressed Congress's criticism about the government's alleged U-turn on pension schemes, stating that improving the pension scheme does not constitute a U-turn. "Unfortunately, these days Congress makes comments without doing comprehensive study," she remarked.

Addressing Employee Concerns

The introduction of UPS comes in response to long-standing demands from government employees for better retirement benefits. The scheme is expected to benefit 23 lakh central government employees who are currently subscribers of NPS. The decision was made ahead of assembly elections in Haryana and Jammu and Kashmir.

Senior Congress leaders have argued that reverting to OPS would be imprudent due to its inherent challenges. However, several non-BJP-ruled states have already reverted to OPS due to its dearness allowance-linked benefits. This shift prompted the Centre to form a committee in April 2023 under former Finance Secretary T V Somanathan to suggest improvements in NPS architecture.

Defending past decisions like restoring indexation benefits as part of long-term capital gains tax (LTCG), Sitharaman stated it was not a rollback but rather an adjustment. She emphasised that UPS is structured so that every calculation fits without overly burdening the government.

The newly launched UPS aims to provide better retirement security for government employees while addressing concerns associated with NPS. By requiring contributions from both employees and employers, UPS seeks to balance benefits with sustainability.