Unified Pension Scheme: Why it matters for UPSC Exam

Key Takeaways:

1. The National Pension Scheme (NPS) replaced the Old Pension Scheme (OPS) connected January 1, 2004. However, determination person been persistent demands for a instrumentality to the OPS due to the fact that for authorities employees, the NPS not lone gave little assured returns, it besides implied worker contributions — which was not the lawsuit with the OPS. In 2023, the authorities constituted a committee chaired by past Finance Secretary (now Cabinet Secretary) T.V. Somanathan. Its recommendations led to the announcement of the UPS.

2. Like the OPS, the UPS provides a guaranteed pension. It aims to springiness stability, dignity, and fiscal information to authorities employees aft retirement, assuring their well-being and a unafraid future. More importantly, the UPS promises retirees a fixed pension, dissimilar the NPS. This was 1 of the large criticisms of the NPS.

Key features of UPS:

i. Assured Pension: The strategy provides an ‘Assured Pension’, which volition beryllium calculated astatine 50 per cent of the mean basal wage drawn implicit the past 12 months by the employee, anterior to superannuation oregon earlier their retirement, for a minimum qualifying work of 25 years. The pension volition beryllium proportionate for a lesser work play up to a minimum of 10 years of service.

ii. Assured minimum pension: The UPS guarantees a monthly pension of Rs 10,000 for superannuation aft astatine slightest 10 years of service.

iii. Assured household pension: If a retiree dies, their contiguous household is entitled to 60% of the pension past taken by the retiree.

iv. Inflation indexation: Dearness alleviation for 3 types of pensions volition beryllium determined utilizing the All India Consumer Price Index for Industrial Workers, which is akin to serving workers.

v. Lumpsum outgo astatine superannuation: In summation to gratuity, lump-sum outgo volition beryllium fixed astatine superannuation. This volition beryllium one-tenth of the monthly emolument (pay + DA) arsenic connected the day of superannuation for each completed six months of service. The outgo volition not trim the quantum of assured pension.

vi. Pension assurance for compulsorily retired employees: The UPS volition besides beryllium disposable for employees compulsorily retired nether cardinal regularisation 56 (j), which is not a punishment nether cardinal civilian services rules, the notification said. However, assured payout volition not beryllium disposable successful lawsuit of removal oregon dismissal from work oregon resignation of the employee. “In specified cases, the Unified Pension Scheme enactment shall not apply,” it said.

vi. Contribution to the Scheme:  There volition beryllium 2 funds nether the UPS: one, an idiosyncratic corpus with worker publication and matching cardinal authorities contribution; and two, a excavation corpus with further cardinal authorities contribution.

The publication of employees volition beryllium 10 per cent of (basic wage + Dearness Allowance (DA) with an equivalent matching cardinal authorities contribution. Both volition beryllium credited to each employee’s idiosyncratic corpus. Separately, the cardinal authorities volition supply an further publication of an estimated 8.5 per cent of (basic wage + DA) of each employees who person chosen UPS, to the excavation corpus connected an aggregate basis.

vii. Choice of investment: The employees volition beryllium capable to marque concern choices for the idiosyncratic corpus only, which would beryllium regulated by the Pension Fund Regulatory and Development Authority (PFRDA). There volition besides beryllium a ‘default pattern’ of concern defined by PFRDA. The concern decisions for the excavation corpus volition beryllium taken solely by the cardinal government.

What was the OPS?

Pension to authorities employees astatine the Centre arsenic good arsenic states was fixed astatine 50 per cent of the past drawn basal pay. The attraction of the OPS laic successful its committedness of an assured oregon ‘defined’ payment to the retiree. In addition, determination was Dearness Relief — calculated arsenic a percent of the basal wage — to set for the summation successful the outgo of living. It was hence described arsenic a ‘Defined Benefit Scheme’. There was nary publication from the employee.

To illustrate, if a authorities employee’s basal monthly wage astatine the clip of status was Rs 10,000, she would beryllium assured of a pension of Rs 5,000. Also, similar the salaries of authorities employees, the monthly payouts of pensioners besides accrued with hikes successful dearness allowance oregon DA announced by the authorities for serving employees.

BEYOND THE NUGGET: Why was NPS introduced?

1. Under the NPS, which covers employees who joined work station January 2004, contributions are defined but benefits beryllium connected the market.

2. The main occupation was that the pension liability remained unfunded — that is, determination was nary corpus specifically for pension, which would turn continuously and could beryllium dipped into for payments. The Government of India budget provided for pensions each year; determination was nary wide program connected however to wage twelvemonth aft twelvemonth successful the future. The ‘pay-as-you-go’ strategy created inter-generational equity issues — meaning the contiguous procreation had to carnivore the continuously rising load of pensioners.

3. The OPS was besides unsustainable. For one, pension liabilities would support climbing since pensioners’ benefits accrued each year; similar salaries of existing employees, pensioners gained from indexation, oregon what is called ‘dearness relief’ (the aforesaid arsenic dearness allowance for existing employees). And two, amended wellness facilities would summation beingness expectancy, and accrued longevity would mean extended payouts.

4. Data amusement that implicit the past 3 decades, the pension liabilities of the Centre and states person jumped manifold. In 1990-91, the Centre’s pension measure was Rs 3,272 crore, and that of each states enactment unneurotic was Rs 3,131 crore. By 2020-21, the Centre’s pensions measure had jumped 58 times to Rs 1,90,886 crore; for states, it had changeable up 125 times to Rs 3,86,001 crore.

(Source: What is Unified Pension Scheme (UPS) 2024,Centre announces Unified Pension Scheme: How volition UPS disagree from OPS, NPS?, Why the Old Pension Scheme is some atrocious economics and atrocious politics)

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