The NDA government on Saturday (August 24, 2024) reversed a 21-year-old reform of India’s civil services pension system boldly brought in by the Atal Bihari Vajpayee government, unveiling what it called a new ‘Unified Pension Scheme’ (UPS) that is virtually akin to the Old Pension Scheme, and assures government employees 50% of their last drawn pay as a lifelong monthly benefit.

The UPS, approved by the Union Cabinet on Saturday (August 24, 2024), also assures officials a periodic dearness relief hike in line with inflation trends, a family pension equivalent to 60% of a government worker’s pension in the case of their demise, and a lumpsum superannuation payout in addition to gratuity benefits at the time of retirement. Besides, a minimum pension of ₹10,000 a month has been promised for those who complete at least 10 years of central government service.

The Cabinet decision was informed by recommendations of a committee under former Finance Secretary and Cabinet Secretary-designate T.V. Somanathan, set up in March 2023 to review the National Pension System (NPS) [originally known as the New Pension Scheme] for government employees in a way that balances “their aspirations with fiscal prudence”.

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At the time, five Opposition-ruled States had moved their employees out of the NPS to the Old Pension Scheme (OPS) with guaranteed pension at 50% of salary. Under the NPS, which kicked in for employees joining government service on or after January 1, 2004, pension payouts were linked to the accumulated value of contributions made by government and the employee through the latter’s working life. These contributions were invested in equities and other market-linked securities by fund managers regulated by the Pension Fund Regulatory and Development Authority (PFRDA).

State governments are open to adopt the architecture of the UPS, cleared by the Cabinet to kick in from April 1, 2025, Mr. Somanathan said after the Cabinet’s clearance, stressing that the key difference between the OPS and the UPS is that OPS liabilities were unfunded and entailed no contributions from employees or the employer.

The UPS, will be a contributory scheme, with employees’ chipping in 10% of salary and the government bringing in 18.5% of salary. Mr. Somanathan also signalled that employees’ contributions will be frozen at the 10% threshold, while the government’s contributions may be adjusted higher or lower based on periodic actuarial assessments about the funding requirements to meet the UPS promises.

While the NPS will continue to remain an option, all employees who have joined service since 2004, including those who may have retired since then, have been given the option to switch over to the more generous UPS, and Mr. Somanathan reckoned it will be beneficial for about 99% of NPS members to move to the UPS. Separately, employees have also been promised a lumpsum payment in addition to gratuity benefits at the time of retirement. This lumpsum will be equivalent to 1/10th of monthly emoluments (pay + Dearness Allowance) for every completed six months of service.

“We are proud of the hard work of all government employees who contribute significantly to national progress. The Unified Pension Scheme ensures dignity and financial security for government employees, aligning with our commitment to their well-being and a secure future,” Prime Minister Narendra Modi emphasised in a post on X.

While Mr. Modi had met government employee representatives earlier in the day, their reaction to the Cabinet move was mixed.

The Central Secretariat Service Forum was pleased that the Government has realised “a genuine need to ponder over NPS” and said the UPS is better with an assured pension. However, the forum resolved to continue asking for its “one and only demand”, the OPS, indicating they were not in favour of salary deductions in the UPS.

Shiv Gopal Mishra, secretary of the Joint Consultative Mechanism (JCM) between the central government and its employees, told The Hindu that they welcomed the UPS, adding that the Prime Minister had assured better coordination with employees in their hour-long meeting in the evening. .

His JCM colleague, All India Defence Employees Federation general secretary C Srikumar differed. “This is a result of our agitations. But we are not happy. The UPS should be non-contributory,” he said, adding that they will await the actual notification before assessing the full impact.

Information and Broadcasting Minister Ashwini Vaishnaw pointed out that Congress-ruled States that had announced a return to the OPS were yet to implement it, while the PM had ensured a well-consulted outcome that will ensure “inter-generational equity”.