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Informist, Saturday, Aug 24, 2024

 

--Cabinet OKs Unified Pension Scheme 

--Govt: Unified pension plan fiscally more prudent than old pension plan 
--Govt: Employer contribution to unified pension system up at 18.5% 
--Govt: Unified pension plan to cost 62.50 bln rupees in first year 
--Minister Vaishnaw: Unified pension plan to be effective Apr 1, 2025 
--Minister Vaishnaw: Govt staff can pick unified or new pension plan 
--Minister Vaishnaw: Unified pension plan to ensure assured returns 
 

NEW DELHI – The Union Cabinet today approved the Unified Pension Scheme, which aims to provide assured pension, family pension, and assured minimum pension for government employees. The new pension plan will be applicable from Apr 1, 2025, Information and Broadcasting Minister Ashwini Vaishnaw said while addressing the media.

 

The launch of the Unified Pension Scheme comes after numerous rounds of discussions with stakeholders, including employee associations which constantly demanded tweaks to the National Pension System to allow assured returns, Vaishnaw said. The committee, formed under former finance secretary T.V. Somanathan, who is currently the Cabinet Secretary, recommended the new plan to the Cabinet. 

 

"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 wrote on microblogging site X, formerly Twitter.

 

To address the demand for assured returns, the Cabinet decided that under the Unified Pension Scheme, 50% of the average basic pay drawn in the last 12 months prior to superannuation for a minimum qualifying service of 25 years would be given as an assured pension. For those with less than 25 years but over 10 years of service, the assured sum would be a proportionate sum calculated on a pro-rata basis, Vaishnaw said. 

 

The second pillar of the Unified Pension Scheme is assured family pension, under which 60% of immediate pension before the demise of an employee will be given to their immediate family. The third pillar is an assured minimum pension, which is devised to address the issue of employees with government service for less than 10 years. Under this, 10,000 rupees will be given to such employees as a minimum assured pension. 

 

The fourth pillar under the Unified Pension System is inflation indexation in the form of dearness relief that will be given under assured pension, family pension and assured minimum pension, Vaishnaw said. "On assured pension, on assured family pension and assured minimum pension dearness relief based on All India Consumer Price Index for Industrial Workers as in case of serving employees will be given," he said.
 

The fifth pillar of the Unified Pension Scheme is a lump sum payment to employees on superannuation in addition to gratuity.

 

While employees' contribution to the Unified Pension Scheme will continue to be at 10%, the Centre's contribution will be raised to 18.5% from 14%, Vaishnaw said. There is a provision that will allow the Centre to revaluate its contribution once every three years, but there is no scope of tweaking staff's contributions, the cabinet secretary said. 

 

Going forward, central government employees will be given the option of choosing between the National Pension System and the Unified Pension Scheme, Somanathan clarified, while adding that the Unified Pension Scheme will be a beneficial plan for over 99% of employees.

 

"There is no deadline, people can continue indefinitely with the National Pension System," Somanathan said. Employees will get the option to switch from the National Pension System to the Unified Pension Scheme or vice versa only once, he said.

 

The five benefits of the Unified Pension Scheme will also be extended to all retired employees under the National Pension System from its inception--2004 up to Mar 31, 2025. In that case, they will get arrears for the past after adjusting the corpus that they have already withdrawn. The arrears payment from the government will also have an interest component that will be payable at the rate of public provident fund, Somanathan said. 

 

The expenditure involved in clearing the past arrears in the first year is to the tune of 8 bln rupees and in the first year of implementation of the Unified Pension Scheme, the additional cost for increased contribution of the government is 62.50 bln rupees, Somanathan said. "It will change year to year as the numbers change," he added.

 

The conversations about introducing changes to the National Pension System gained steam as the central staff committee sought assured pension from the government. The Old Pension Scheme, which the National Pension System replaced as the former was fiscally imprudent, had a definite benefit while there was no compulsory staff contribution. 

 

"The assured pension (under the Unified Pension Scheme) is a fully funded scheme...funded each year from the Budget," the cabinet secretary said. "It is definitely fiscally more prudent. It remains in the same architecture of a contributory funded scheme...that is the critical difference. The Old Pension Scheme is an unfunded, non-contributory scheme. The changes announced today are to give an assurance and not leave things to the vagaries of market forces," Somanathan said.

 

In her Budget speech in 2023, Finance Minister Sitharaman had announced setting up of the committee to review the pension system. The committee was to come up with a solution to the issue of pensions, Sitharaman had said. The committee was set to study whether changes were required in the existing framework of the National Pension System and suggest ways to improve pension benefits for central government employees while ensuring fiscal prudence. The panel was also set to hold consultations with states before making its final recommendations. The pension authority's chairman, Deepak Mohanty, is also on the panel. 

 

The government introduced the defined-contribution National Pension System on Jan 1, 2004, replacing the defined benefit pension scheme. All states, except Tamil Nadu and West Bengal, joined the new plan.

 

Under the old pension scheme, government employees who have completed at least 10 years of service receive a monthly guaranteed pension based on their last drawn basic salary and the years of service. Under this, the employees do not need to make a contribution.

 

The National Pension System is a market-linked annuity scheme in which individuals can invest a regular amount during employment and receive an annuity when they retire. Under the National Pension System, state government employees make a monthly contribution at the rate of 14% of their salary to the pension fund, and a matching contribution is paid by the state government. The system is administered and regulated by the Pension Fund Regulatory and Development Authority. The pension system is mandatory for central government employees, while others can join it voluntarily.

 

The Unified Pension Scheme that was launched today can be adopted by states, Vaishnaw said, adding that the decision lies with them. "The national architecture has been formed by this committee and the states are welcome to use it," he said.

 

The National Council, a joint consultative machinery that looks into pay and allowances, weekly working hours and leave policies of central government services, is pleased with the new pension plan announced today, Vaishaw added. On behalf of central government employees, the National Council had put forth its views to the pension committee under Somanathan.  End

 

Reported by Priyasmita Dutta

Edited by Avishek Dutta

 

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