Ecostani | Unified Pension Scheme, a moral victory for the Opposition

The BJP-led central government appointed a committee headed by Cabinet Secretary-designate T.V. Somanathan in March 2023 to review the New Pension Scheme.

The Unified Pension Scheme (UPS) approved by the Union government on Saturday (August 24) —  a mix of contribution and assured pension, to replace the New Pension Scheme (NPS), a wholly contributory mechanism — will provide some social security to government employees after retirement.

The NPS became applicable in all states, except West Bengal, which continued with OPS, from January 1, 2004.

The scheme, which is virtually akin to the Old Pension Scheme (OPS) that NPS replaced in 2004, assures government employees 50% of their last drawn pay as a lifelong monthly benefit like OPS will be applicable to the central government employees; states can also extend it to its employees.

The NPS became applicable in all states, except West Bengal, which continued with OPS, from January 1, 2004. Under the NPS, pension payouts were linked to the accumulated value of contributions made by the 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).

The genesis of the UPS lies in protests against the NPS by government employees from across the country, citing low pension benefits. In some cases, the pension was as low as ₹10,000 of the basic pay, even for class 1 government officials such as college lecturers. The NPS created two pension systems for the same set of government employees, one getting assured pension under OPS and other uncertain retirement benefits under the NPS.

The protests started in late 2020-21 following large-scale retirements under NPS. The employees demanded the restoration of the OPS, which guaranteed a minimum 50% of the basic pay as pension regular dearness allowance based on inflation and no contribution from employees. The ruling Bharatiya Janata Party (BJP) opposed the restoration of the OPS saying it would lead to an unsustainable burden on the public exchequer.

The Congress leadership saw reasonableness in the demand of government employees that pension is an instrument of social security after retirement. The Congress government in Rajasthan restored the OPS in September 2022, reversing the 20-year-old reform of India’s civil services pension system boldly brought in by the Atal Bihari Vajpayee government to reduce the salary burden of the government.

Subsequently, opposition-ruled states such as Tamil Nadu, Kerala, Jharkhand, Chhattisgarh and Punjab, returned to the OPS. The Congress promised OPS as poll promise in Himachal Pradesh assembly polls in 2022 and earned a rich political dividend, helping it to defeat the BJP. The OPS promise is said to have wooed government servants, traditionally BJP voters, towards the Congress in the 2024 Lok Sabha elections in many states.

Concerned by the growing discontent among government employees and also voices from within the party, the BJP-led central government appointed a committee headed by Cabinet Secretary-designate T.V. Somanathan in March 2023 to review the NPS.

The committee finally recommended the UPS as a solution. It is primarily based on the Guaranteed Pension Scheme (GPS) introduced by the YSRCP-led Andhra Pradesh government when Jagan Reddy was the state chief minister in 2023. Like GPS, the UPS is also based on contribution depending on a number of years in service and assures guaranteed pension to the retired person and after his death, to his dependents.

The UPS 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 lump sum superannuation payout in addition to gratuity benefits at the time of retirement. Besides, a minimum pension of ₹10,000 a month has been promised to those who complete at least 10 years of central government service.

The UPS that will kick in from April 1, 2025, will be a contributory scheme, with employees chipping in 10% of their salary and the government bringing in 18.5% of their salary. 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. It would be interesting to see how many employees will remain with NPS after April. In states such as Rajasthan and Jharkhand, where the OPS option was provided, less than one percent of the current employees continued with NPS. The Central government also expects the same to happen.

The Central Secretariat Service Forum was pleased that the Government has realised “a genuine need to ponder over NPS” and said the provisions of the UPS are better, especially 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 reporters that they welcomed the UPS, adding that the Prime Minister had assured better coordination with employees during their recent hour-long meeting.

Congress leader and former Rajasthan chief minister Ashok Gehlot was the first to react to government employees' demand for OPS and start a political movement against the BJP claiming it to be insensitive towards social security of the government employees. He countered the repeated BJP claim that assured pension will cripple government finances saying it was the responsibility of the government to take care of its employees in old age. The Rajasthan government also claimed that the additional financial burden because of OPS will not be more than 2% of the state’s budget.

The Congress high command agreed with him and restoration of OPS became a common factor in party manifestos for state assembly elections and also for the Lok Sabha poll. The Left parties and others joined the Congress in the demand for assured pension. With the issue resonating with people, some BJP leaders such as former chief minister of Himachal, Prem Kumar Dhumal, also sought assured pensions.

In a way, Saturday’s cabinet decision to introduce UPS is a moral victory for the opposition for taking up people-centric issues.

Chetan Chauhan, national affairs editor, analyses the most important environment and political story in the country this week