Govt approves Assured pension @ 50% last basic pay with Dearness Relief

The Cabinet, led by Prime Minister Narendra Modi, approved the Unified Pension Scheme (UPS) for government employees on Saturday. The announcement was made by Information and Broadcasting and Railway Minister Ashwini Vaishnaw during a press briefing. Vaishnaw stated that the new scheme will benefit 2.3 million central government employees.

State governments will also have the option to adopt the UPS, potentially increasing the number of beneficiaries to around 9 million. The government has estimated that the arrears expenditure will amount to ₹800 crore, with an annual cost increase of approximately ₹6,250 crore in the first year.

The Unified Pension Scheme will take effect from April 1, 2025. Central government employees will be given the choice between the National Pension Scheme (NPS) and the new UPS. Existing NPS subscribers within the central government will also have the option to switch to UPS. Government officials highlighted that most central government employees would benefit more from the UPS compared to the NPS. The NPS, which applies to employees who began their service on or after April 1, 2004, operates on a contribution model, unlike the defined benefit scheme available to those hired before this date.

Key features of the Unified Pension Scheme include:

• Assured Pension: 50% of the average basic pay drawn over the last 12 months before retirement, with a minimum qualifying service of 25 years, proportionate for lesser service down to a minimum of 10 years.
• Family Pension: 60% of the pension of the employee immediately before their demise.
• Minimum Pension: ₹10,000 per month on retirement after at least 10 years of service.
• Inflation Indexation: Dearness relief based on the All India Consumer Price Index for Industrial Workers (AICPI-W) will apply to the assured pension, family pension, and minimum pension.
• Lump-Sum Payment: At retirement, in addition to gratuity, 1/10th of the monthly emolument (pay + DA) as of the retirement date for every completed six months of service. This will not reduce the amount of assured pension.

Vaishnaw emphasized that the approval of the Unified Pension Scheme addresses concerns raised by government employees regarding new pension schemes. In response to these concerns, Prime Minister Modi formed a committee led by Cabinet Secretary TV Somanathan, which conducted a thorough investigation, holding over 100 meetings with various organizations and nearly all states. The committee also consulted stakeholders such as the Reserve Bank of India and the World Bank to ensure informed decision-making.

Based on the committee's extensive deliberations and recommendations, the Unified Pension Scheme was approved to address employees' concerns and enhance the pension system's efficiency and effectiveness.

Kuldip Kumar, Partner at Mainstay Tax Advisors, noted that the UPS is likely to be well-received by central government employees, as it provides an assured pension for both employees and their families, with the added benefit of inflation indexation. He pointed out that this marks a return to the era of defined benefit pension schemes, a key demand from employees dissatisfied with the NPS. However, Kumar warned that this could increase the government's pension liability, as it would no longer be limited to the corpus accumulated by employees during their service.