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The NDA government has reversed the 21-year-old reform of India’s civil service pension system, boldly brought in by the Atal Bihari Vajpayee government, and introduced a new ‘Unified Pension Scheme’ (UPS). | Photo Credit: Getty Images/iStock
NDA government on Saturday (24 August 2024) Reverse The 21-year-old reform brought in by the Atal Bihari Vajpayee government to India’s civil service pension system, introduced what it called a new ‘Unified Pension Scheme’ (UPS), which is essentially a new pension scheme. Same as old pension schemeAnd assures government employees 50% of their last salary as a lifetime monthly benefit.
The UPS was approved by the Union Cabinet on Saturday (August 24, 2024).Besides, the officers are also assured of increase in dearness relief from time to time in line with inflation trends, family pension equivalent to 60% of the pension of the government servant in the event of his death and lump sum retirement payment in addition to gratuity benefits at the time of retirement. Besides, a minimum pension of Rs 10,000 per month has been promised for those who complete at least 10 years of Central Government service.
The Cabinet decision is based on the recommendations of a committee headed by former finance secretary and Cabinet secretary-designate TV Somanathan, constituted in March 2023 to review the National Pension System (NPS) (originally known as the New Pension Scheme) for government employees to strike a “balance between their aspirations and fiscal prudence”.
The Hindu explains. Why is the government making changes in the National Pension System?
At that time, five states governed by opposition parties had moved their employees out of the NPS and into the Old Pension Scheme (OPS), which guaranteed pension at 50% of wages. Under the NPS, which began for employees who joined government service on or after January 1, 2004, pension payments were linked to the accumulated value of contributions made by the government and the employee during his tenure. These contributions were invested in equities and other market-linked securities by fund managers regulated by the Pension Fund Regulatory and Development Authority (PFRDA).
Mr. Somanathan said after the Cabinet approval that the State Governments are ready to adopt the UPS structure which has been approved by the Cabinet to be implemented from April 1, 2025. He emphasized that the main difference between OPS and UPS is that OPS liabilities are not funded and there is no contribution from the employees or employers.
UPS will be a contributory scheme, with employees contributing 10% of their salary and the Government contributing 18.5% of their salary. Mr. Somanathan also indicated that the employees’ contribution will remain fixed at 10%, while the Government’s contribution may be increased or decreased depending on periodic actuarial assessments of the funding requirements to meet UPS promises.
While NPS will continue to be an option, all employees who joined service since 2004, including those who have retired since then, have been given the option to switch to the more liberal UPS, and Mr. Somanathan estimated that moving to UPS would be beneficial for about 99% of NPS members. Separately, employees have also been promised a lump sum payment at the time of retirement in addition to the gratuity benefit. This lump sum will be equal to 1/10th of the monthly emoluments (pay + dearness allowance) for every completed six months of service.
“We are proud of the hard work of all government servants who make a significant contribution to national progress. The Integrated Pension Scheme ensures dignity and financial security for government employees, in line with our commitment to their well-being and secure future,” Prime Minister Narendra Modi emphasised in a post on X.
Though Mr Modi met representatives of government employees during the day, their reaction to the Cabinet move was mixed.
The Central Secretariat Service Forum was pleased that the government has realised the “genuine need to consider the NPS” and said the UPS is better with an assured pension. However, the Forum resolved to continue to demand for their “only demand”, the OPS, indicating that they were not in favour of a pay cut in the UPS.
Shiv Gopal Mishra, secretary of the Joint Consultative Mechanism (JCM) between the central government and its employees, told The Hindu that they welcomed the UPS, adding that the prime minister had assured better coordination with the employees during an hour-long meeting in the evening.
His JCM colleague, All India Defence Employees Federation general secretary C Srikumar, disagreed. “This is the outcome of our agitation. But we are not happy. UPS should be non-contributory,” he said, adding that they would wait for the actual notification before assessing the full impact.
Information and Broadcasting Minister Ashwini Vaishnaw pointed out that the Congress-ruled states that had announced a return to OPS are yet to implement it, while the Prime Minister has ensured an outcome after a well-consulted meeting that will ensure “inter-generational equity”.
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