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Informist, Wednesday, May 13, 2026

 

--Fin min source: To nudge PFRDA to bring Bengal, Tamil Nadu under NPS

--Fin min source:PFRDA to nudge some states to opt for Unified Pension Scheme

 

By Priyasmita Dutta and Sagar Sen

 

NEW DELHI – With new governments taking over in West Bengal and Tamil Nadu, the finance ministry plans to nudge the Pension Fund Regulatory and Development Authority to restart discussions with the two states to bring their state government employees under either the National Pension System or the Unified Pension Scheme, a senior government official said. The Centre introduced the defined-contribution NPS on Jan. 1, 2004, replacing the defined-benefit pension scheme, or the Old Pension Scheme. However, Tamil Nadu and West Bengal never adopted the NPS and continued with the Old Pension Scheme.

 

"After a long time, there will be a change in government in West Bengal. We are hopeful that with the new dispensation in place, talks will move forward," the official told Informist. "In the last two-three years, there were positive talks with the Tamil Nadu government, but a final decision was never taken. We see scope for positive talks there as well," the official said.

 

Under the Old Pension Scheme, government employees who complete at least 10 years of service receive a guaranteed monthly pension based on their last drawn basic salary and years of service. Under this scheme, employees are not required to contribute. The NPS, on the other hand, is a market-linked annuity scheme under which individuals contribute regularly during employment and receive a pension linked to the fund performance upon retirement.

 

Under NPS, state government employees contribute 14% of their salary every month to the pension fund, and a matching contribution is paid by the state government. The system is administered and regulated by PFRDA. The new pension system is mandatory for central government employees, while others may join voluntarily.

 

The government announced the Unified Pension Scheme in August 2024, combining features of the NPS and the Old Pension Scheme. The scheme was introduced at a time when opposition to the NPS was growing, with many opposition-ruled states like Chhattisgarh, Rajasthan, Punjab, Himachal Pradesh, and Karnataka switching back to the Old Pension Scheme despite the higher fiscal costs.

 

The Unified Pension Scheme retains employee contributions but guarantees a pension equivalent to 50% of the average basic pay drawn in the final 12 months of service. The scheme guarantees a minimum pension of INR 10,000 per month for those with at least 10 years of service. The scheme also includes inflation indexation to preserve the real value of pensions.

 

According to the finance ministry official, PFRDA is also asking states, including Maharashtra, Punjab, and Haryana, to consider implementing the Unified Pension Scheme. "Maharashtra was the first to show interest in joining UPS; however, they are yet to implement it," the official said. "PFRDA has also held some preliminary discussions with Punjab and Haryana to introduce UPS," the official added. 

 

Since the Unified Pension Scheme provides defined benefits, employees contribute 10% of their basic pay and dearness allowance, while the government, or the states in this case, contribute another 18.5% to the pension pool. The corpus is then invested in government securities and equities, based on which the eventual pension payout is calculated. The fiscal burden of the Unified Pension Scheme is higher than that of the NPS since the government has to ensure the defined pension benefit even if investment returns fall short.

 

The Old Pension Scheme is fiscally expensive and has already created fiscal problems for states like Himachal Pradesh. A study by the Reserve Bank of India staff in 2023 had estimated that, in the long run, the shift to the Old Pension Scheme may increase the government's pension spending to more than 4.5 times the outgo under the NPS.  End

 

Edited by Avishek Dutta

 

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