Syllabus: Government Policies and Interventions
Source: IE
Context: The Unified Pension Scheme (UPS) approved by the Union Cabinet promises assured pensions for government employees after retirement, starting April 2025.
The Unified Pension Scheme (UPS), based on the T.V. Somanathan Committee’s recommendations (2023), aims to combine the benefits of both the Old Pension Scheme (OPS) and the New Pension Scheme (NPS).
Key Features of UPS:
- Assured Pension: 50% of the average basic pay from the last 12 months for a minimum of 25 years of service. Proportionate for service periods between 10 and 25 years.
- Assured Family Pension: 60% of the retiree’s pension to their family after their demise.
- Assured Minimum Pension: ₹10,000/month (higher than ₹9,000 under OPS and NPS).
- Inflation Indexation: Dearness relief linked to the All India Consumer Price Index for Industrial Workers (AICPI-IW), similar to OPS.
- Lump Sum Payment: An additional payment equal to 1/10th of the monthly salary + dearness allowance for every six months of service, alongside gratuity, without affecting the pension amount.
Differences between the Unified Pension Scheme (UPS), National Pension Scheme (NPS), and Old Pension Scheme (OPS):
| Feature | Unified Pension Scheme (UPS) | National Pension Scheme (NPS) | Old Pension Scheme (OPS) |
| Effective Date | April 1, 2025 | January 1, 2004 | Pre-2004 (replaced by NPS) |
| Pension Type | Assured Pension | Market-linked returns | Assured Pension |
| Pension Calculation | 50% of average basic pay of last 12 months (min. 25 years service); proportionate for lesser service (min. 10 years) | Based on market performance of funds, no assured amount | 50% of last drawn basic pay |
| Minimum Pension | ₹10,000/month (min. 10 years service) | No minimum assured pension | ₹9,000/month (adjusted for inflation) |
| Family Pension | 60% of the retiree’s pension | No family pension guarantee | 50% of retiree’s pension |
| Inflation Indexation | Dearness Relief based on AICPI-IW | Not applicable (market-based returns) | Dearness Relief based on AICPI-IW |
| Lumpsum Payment | 1/10th of monthly salary + Dearness Allowance for every 6 months of service (in addition to gratuity) | No lumpsum payment | No lumpsum payment |
| Fiscally Funded | Yes (contributory funded scheme) | Yes (contributory funded scheme) | No (unfunded scheme) |
Concerns with the Old Pension Scheme (OPS) and the issues with the National Pension Scheme (NPS):
| Concerns/Issues | Old Pension Scheme (OPS) | National Pension Scheme (NPS) |
| Funding | Unfunded Pension Liability: No dedicated corpus for pensions. The government provided annual budgets without a clear future plan. | Funded by employee contributions (10% of basic pay + dearness allowance) and government contributions. |
| Sustainability | Unsustainable: Pension liabilities increased with salary hikes and indexation. Extended life expectancy added to the burden. | Market-linked and return-based: Payouts are uncertain due to dependence on market performance. |
| Payout Stability | Fixed pension amount, but with increasing financial strain due to rising liabilities. | Variable pension amount, subject to market fluctuations and investment returns. |
| Pension Calculation | 50% of last drawn basic pay, with benefits adjusted for inflation. | No guaranteed pension amount; depends on market performance and contributions. |
| Impact on Government Finances | Massive pension burden due to increasing liabilities and longer lifespans. | More controlled fiscal impact due to contributory nature, but with uncertain returns for employees. |
Insta Links:
Prelims Link:
- Who among the following can join the National Pension System (NPS)? (UPSC 2017)
(a) Resident Indian citizens only
(b) Persons of age from 21 to 55 only
(c) All State Government employees joining the services after the date of notification by the respective State Governments
(d) All Central Government employees including those of Armed Forces joining the services on or after 1st April, 2004
Ans: (c)
