Govt transforms NPS to Unified Pension Scheme; approves assured pension for govt employees

In a bonanza to 23 lakh central government employees, the Union Cabinet on Saturday approved an assured pension of 50% of salary for those who joined the service after January 1, 2004, under the National Pension System (NPS).

Fulfilling long pending demands of government employees ahead of assembly elections in Haryana and Jammu and Kashmir, the Cabinet meeting, chaired by Prime Minister Narendra Modi, approved the Unified Pension Scheme (UPS), which assures guaranteed pension.

Employees opting for UPS would be eligible for an assured pension of 50% of the average basic pay drawn over the last 12 months before the superannuation for a minimum qualifying service of 25 years.

This pay is to be proportionate for a lesser service period up to a minimum of 10 years of service, Information and Broadcasting Minister Ashwini Vaishnaw said.

The new pension scheme also guarantees an assured minimum pension of Rs 10,000 per month on superannuation after a minimum of 10 years of service.

This option scheme will benefit 23 lakh central government employees, he said, adding that the number would rise to 90 lakh if state governments want to join the scheme.

Announcing other features of UPS, Vaishnaw said an assured family pension will be provided to the spouse of a deceased employee. In addition, there would be inflation indexation on assured pension, assured family pension, and assured minimum pension.

There will be Dearness Relief based on the All India Consumer Price Index for Industrial Workers (AICPI-IW) as in the case of serving employees, the minister said.

In addition to gratuity, he said, employees at the time of retirement would be eligible for a lump sum amount -- 1/10th of monthly emolument (pay + DA) as on the date of superannuation for every completed six months of service.

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With the addition of all these features, it marks the transformation of the National Pension System (NPS), which promised pensions based on the contribution made by employees and the government.

The announcement came against the backdrop of several non-BJP states deciding to revert to the DA-linked Old Pension Scheme (OPS) and employee organisations in some other states raising demand for the same.

NPS has been implemented for all government employees except those in the armed forces joining the central government on or after January 1, 2004.

Most state/Union Territory governments have also notified NPS of their new employees.

Under the Old Pension Scheme (OPS), retired government employees received 50% of their last drawn salary as monthly pensions. The amount keeps increasing with the hike in the DA rates. OPS is not fiscally sustainable as it is not contributory, and the burden on the exchequer keeps mounting.

To improve the pension system for government employees, the finance ministry last year set up a committee under Finance Secretary TV Somanathan to review the pension scheme for government employees and suggest any changes, if needed, in the light of the existing framework and structure of the National Pension System.

Briefing media, Cabinet Secretary-designate Somanathan said the new scheme will be applicable from April 1, 2025.

The benefits of the Unified Pension Scheme will apply to those who are retired or retiring under the NPS till March 31, 2025. They will be eligible for arrears, he said.

There would not be an additional burden on employees opting for UPS. The employee's contribution would remain 10%, while the government contribution would go from 14% to 18.5%.

Expenditure for arrears would be approximatelyRs 800 crore, and Rs 6,250 crore additional burden on the government for the enhanced contribution of 18%, Somanathan added. If the state government joins UPS, they would bear the additional burden for those employees for the assured pension.