The Unified Pension Scheme (UPS) is “not a compulsion for states,” according to Union Finance Minister Nirmala Sitharaman, who stated on Tuesday that each state is free to make its own decisions.
Nonetheless, she expressed optimism that UPS will be adopted by most states because “it has a lot of benefits for employees.”
“The UPS is an attempt to improve the existing National Pension System (NPS). There is no rollback or U-turn by introducing assured pensions under UPS. It is clearly a new package,” Sitharaman said in her first official comments on UPS during a select media briefing here.
Following the launch of UPS, the Congress had already criticised the administration, labelling it a “rollback government.” Sitharaman responded by referring to the Congress as a “sloganeering (naara) party.”
Sitharaman said UPS aims to address issues arising from the Old Pension Scheme (OPS) and the NPS. “The benefit under UPS will be given on a pro-rata basis if the service period is less than 25 years. The Pension Fund Regulatory and Development Authority will continue to manage funds under UPS,” Sitharaman said.
She also clarified there would be no changes to the tax treatment under UPS.
The Union Cabinet on Saturday approved the UPS, which provides an assured pension of 50% of the average basic pay drawn over the past 12 months prior to superannuation, for a minimum qualifying service of 25 years. This approval represents a significant enhancement to pension benefits for central government employees.
Separately, Sitharaman stated that rate rationalisation would be on the agenda for the upcoming Goods and Services Tax (GST) Council meeting on September 9. “However, no decision will be taken in the next meeting. The group of ministers will hold more meetings to finalise the report,” she said.
According to the administration, the UPS will help over 2.3 million central government employees starting on April 1 of the following fiscal year. For shorter service durations, the pension amount will be commensurate, with a minimum of ten years of service.
The government estimates that the cost of arrears will be Rs 800 crore, with an approximate annual cost increase of Rs 6,250 crore during the first year.
The guaranteed minimum pension and family pension are two more parts of the program.
When an employee passes away, their family will receive 60% of their immediate pension under the guaranteed family pension component. After at least ten years of service, the UPS offers a guaranteed minimum pension of Rs 10,000 per month upon superannuation.
A commission headed by former finance secretary T V Somanathan was established by the Narendra Modi administration in March 2023 to investigate methods to improve pension benefits under NPS without going back to the financially unfeasible, non-contributory OPS.
