With the Unified Pension Scheme (UPS), the govt sought to bring the benefits on a par with the old pension scheme (OPS) and blunt the opposition’s bid to revert to the earlier regime in the states governed by them, and mop up electoral dividends in the ensuing assembly polls.
The decision also opens the doors for states to offer UPS, a contributory scheme, which will take the count of beneficiaries to 90 lakh employees. The scheme – which employees will get a one-time option to switch to – introduces inflation adjustment through dearness relief.
Those opting for UPS will be assured of 50% payout if they complete 25 years of service, information and broadcasting minister Ashwini Vaishnaw announced. The payout proportion will be lower for those who put in fewer years in any govt job. Cabinet secretary-designate TV Somanathan, who chaired the committee that reviewed NPS, told reporters that following the announcements, govt’s contribution towards UPS will rise to 18.5%, against 14% currently.
On their part, employees are required to chip in with a contribution of 10% of their basic pay and DA. Cabinet secretary-designate T V Somanathan said that there will be an actuarial calculation every three years to ensure that the liability does not remain unfunded, as was the case with OPS where govt had to bear the entire liability without the employee contributing anything.
Elaborating on the “five pillars” of UPS, which will be implemented from April next year, Vaishnaw said a minimum pension of Rs 10,000 will be offered to those who work for 10 years, with family pension to the spouse pegged at 60% of the deceased govt employee’s pension.
In addition, a lump sum payment at time of retirement – 10% of the pay and dearness allowance (DA) for every six months of service – is also provided for. “For 30 years of service, around six months of emoluments will be given as a lump sum amount at the time of retirement,” the minister said, adding that the payment will be in addition to gratuity.
The scheme, which will be extended to those who have retired, will result in an additional cost of Rs 6,250 crore due to higher contribution and another Rs 800 crore towards payment of arrears, Somanathan said. “It is fiscally prudent… It is a funded, contributory scheme. The only difference in the changes made today is to give an assurance to govt employees and not leave it to market forces,” he added.
UPS – which was under review for 18 months – has sought to address key concerns of employees, especially the risk of lower payout due to market fluctuations as the over Rs 11 lakh crore pension corpus of govt employees who joined after 2004 is invested in govt securities (up to 65%), equities (15%) and corporate bonds.
“Govt is ensuring that there is adequate money to pay pension, which was not the case under OPS. This is yet another fiscally prudent move, which also takes care of employees’ interest,” said Balram Bhagat, CEO and whole-time director, UTI Pension Fund, among the largest fund managers.
At the press conference, Vaishnaw hit out at the opposition. “Himachal Pradesh and Rajasthan have announced OPS but have not implemented it. Congress has merely announced and kept them under illusion. In contrast, PM Modi has implemented a scheme after extensive consultations, which also ensures inter-generational equity,” he said.
Though the scheme comes days after govt took back its plan to induct 45 mid-level officers through the lateral entry route amid criticism for not providing quotas to SCs and STs, Vaishnaw dismissed suggestions that it was politically motivated and could have helped BJP if it was announced ahead of the general elections. “PM has always gone beyond electoral politics. Decisions are taken in public interest. It is a well thought out decision after extensive consultations. It has got nothing to do with elections. Govt employees, whether central govt or state govt, have seen the work over the last 10 years and we have received a lot of support from them,” the minister said.