UPS vs NPS: The Narendra Modi-led government has given the green light to the Unified Pension Scheme, a new pension policy set to take effect in the next fiscal year, FY2025-26. The scheme, designed to address the criticism faced by the government for discontinuing the Old Pension Scheme (OPS), combines the benefits of both the Old Pension Scheme and the New Pension Scheme (NPS) to offer a more balanced approach to retirement benefits for Central government employees.
Under the Unified Pension Scheme, retirees will receive a defined assured pension, ensuring a fixed and predetermined sum of money that guarantees financial stability post-retirement. Specifically, Central government employees will be entitled to 50% of their last drawn salary, calculated based on their average salary over the last 12 months of service, as their pension. Additionally, employees who have served for more than 25 years will be eligible for inflation-linked increments post-retirement, further enhancing their financial security.
Balancing Tradition and Modernity in Pension Reform
The introduction of the Unified Pension Scheme is seen as a significant move by the government to address the concerns of employees who were critical of the shift from the Old Pension Scheme to the New Pension Scheme. By incorporating features from both systems, the new scheme aims to provide a more comprehensive and secure retirement plan for government employees.
The scheme’s approval follows extensive consultations and discussions, particularly with the Joint Consultative Mechanism (JCM). Information & Broadcasting Minister Ashwini Vaishnaw highlighted the government’s responsiveness to employee demands for reforming the NPS, stating, “There have been demands from government employees to reform NPS… PM Narendra Modi formed a committee in April 2023 under T V Somanathan (then finance secretary)… After extensive consultations and discussions, including with the JCM, the committee has recommended the Unified Pension Scheme. Today, the Union Cabinet has approved the scheme.”
- Addressing Employee Concerns and Ensuring Financial Security
The Unified Pension Scheme is expected to provide a more equitable pension structure, particularly for those concerned about the unpredictability of the NPS. By guaranteeing a defined pension amount and linking it to the last drawn salary, the scheme aims to offer a more reliable income stream for retirees.
The inclusion of post-retirement inflation-linked increments for employees with more than 25 years of service is another key feature designed to protect retirees against the eroding effects of inflation, ensuring that their pensions retain their value over time.
The approval of this scheme marks a significant step in the government’s ongoing efforts to reform the pension system and provide Central government employees with a secure and stable financial future. As the scheme is set to be implemented in FY2025-26, it is expected to play a crucial role in shaping the retirement landscape for government employees in the years to come
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