The central government has taken an important decision amidst the increasing demand among central government employees to implement the old pension scheme. After returning to New Delhi from his Ukraine visit on Saturday, Prime Minister Narendra Modi chaired the cabinet meeting later in the evening, in which the decision regarding the Unified Pension Scheme (UPS) was made. This scheme has been brought as an alternative to NPS (National Pension System). The objective of this scheme is to provide assured pension, family pension and minimum pension to the central government employees. This step has been taken in response to the long-standing demand of the employees for reforms in NPS.

Also Read: UPS Versus NPS: Know The Key Differences Between These Two Pension Schemes

Union Finance Minister Nirmala Sitharaman announced in March last year the formation of a committee under the leadership of Finance Secretary T.V. Somanathan to “reform” NPS. This move came after opposition-ruled states (Chhattisgarh, Jharkhand, Rajasthan, Punjab, Karnataka and Himachal Pradesh) adopted the old pension scheme (OPS).

OPS was abolished by the centre in 2004, considering the financial burden; later, it was adopted by all the states except West Bengal. Under OPS, employees get half their last drawn salary as a pension after retirement. On the other hand, in NPS, 10 per cent of the employees’ basic pay is deducted for contribution to the scheme, and the government also contributes 14 per cent to it; the fund is then invested in the stock market. NPS also does not have the benefit of dearness allowance and pay commission. People with a salary of Rs 2 lakh get a pension of Rs 5,000 to 10,000 in NPS. Due to this, they are unable to pay their monthly electricity bills and even meet medicine expenses, and in their old age, they are forced to survive by doing odd jobs. After retirement, when the body starts failing, the family members also consider it a burden. In a nuclear society, seniors have the greatest financial need after retirement to fulfil family and social responsibilities with self-respect.

Difference Between NPS And UPS

The employees opposing NPS argued that the pension under NPS is dependent on the share market. In fact, it is a scheme based on the American model, which can be called private pension in common language. UPS is the new pension scheme for government employees. Under this, employees will be given an assured pension after retirement. Employees will be given 50 per cent of the average basic pay of the last 12 months before their retirement as a pension. That is, if an employee gets a basic salary of Rs 70,000 in the last year of his job, then, after retirement, he will get a pension of Rs 35,000 every month. A pension of 50 per cent of the average basic pay will be given to those who have been working for 25 or more years.

At the same time, if a pensioner dies, his family will get 60 per cent of the pension he was getting till that time. Apart from this, if the service of the employee is less than 25 years and more than 10 years, the pension amount will be decided on the basis of proportionate allocation. The important aspect is that irrespective of the employee’s working years, the minimum amount of his pension will not be less than Rs 10,000.

Until now, to pay pension under NPS, employers used to deduct 10 per cent of their salary. Employees will still continue to contribute 10 per cent under UPS. However, the government has increased its stake now from 14 to 18.5 per cent. Also, the government can make changes in its share by reviewing it every three years, but there will be no change in the 10 per cent share of the employees. No separate announcement has been made in UPS regarding gratuity and general provident fund. However, it has been said that on completion of every six months of service, a lump sum amount will be given at the end by adding 10 per cent of the total salary and deadness allowance (DA). Gratuity is also called a lump sum amount.

Also Read: Should You Move Into A Senior Living Home Before Your Retirement?

Central government employees can decide whether to remain in the New Pension System (NPS) or join the Unified Pension Scheme (UPS). UPS is currently only for central government employees. The number of these employees is around 23 lakh. In future, if the states wish, they can also implement this scheme. If all the states adopt it, a total of 90 lakh employees, combining the states and the centre, will come under its purview.

Employee Concerns

For some time now, employees of the central and state governments have been struggling to abolish NPS and restore pensions under the old pension scheme. The Modi-led NDA government has tried to reject the long-standing demand for OPS by the opposition by introducing UPS. The central government brought this scheme at a time when elections were announced in Haryana and Jammu and Kashmir. Elections are also to be held in Maharashtra and Jharkhand soon.

The employees’ organisations say that if the government can offer the UPS option, what problem does it have in providing OPS? They say that the government will also keep the employees’ 10 per cent contribution and will return only the salary of the last 6 months. This will cause loss to those working for a long time. Earlier, NPS was being praised, but now UPS is being said to be good.  UPS will be implemented on April 1, 2025, and until then, work will be conducted to establish the necessary regulations. It will not be until then that UPS’s advantages and disadvantages will be fully understood.

The author is an associate professor at Atal School of Management (ABVSME), Jawaharlal Nehru University (JNU), New Delhi.

(Disclaimer: Views expressed are the author’s own, and Outlook Money does not necessarily subscribe to them. Outlook Money shall not be responsible for any damage caused to any person/organisation directly or indirectly.)