In a major decision marking almost a return to the Old Pension Scheme (OPS) which had existed till 2003, the Narendra Modi government has launched the Unified Pension Scheme (UPS), conceding a major demand of central employees.
The New Pension Scheme was launched in 2003 by the then Atal Bihari Vajpayee government, replacing the OPS. The Manmohan Singh government followed this and so did the Modi government, till last year a committee was formed to look into the increasing demands of various employee unions. The Congress made OPS restoration a centre-piece of its state election campaigns but skipped its mention in the 2024 Lok Sabha poll manifesto.
The union cabinet cleared the Unified Pension Scheme on Saturday, saying, “UPS structure has elements of both OPS and NPS, and removes uncertainties of the market, and gives assurance.” UPS brings back an assured pension equal to 50% of basic pay plus a dearness relief that will be linked to the inflation index. Further, every central government employee who retired since 2004 will get the UPS benefit with retrospective effect, with arrears being paid to them.
All employees will have the option to switch to UPS from April 1, 2025, a given proposition because of the incentives being offered and the government itself terming it an “attractive scheme”. The UPS will have a fiscal impact, which was the logic of the Vajpayee government in 2003 to do away with the OPS as the pension burden of government employees is significant. The Agnipath scheme launched by the government for the armed forces also leads to a reduction of the pension burden on the exchequer.
The Political Impact
The Congress would see this to be yet another U-turn by the Modi government after the 2024 Lok Sabha election results, as many BJP functionaries had said that a return to the OPS would mean a big fiscal dent. However, union minister Ashwini Vaishnaw said many Congress experts (referring obliquely to P Chidambaram and Montek Singh Ahluwalia) also did not advocate a return to the OPS and there was a divide inside the party on the issue.
But the BJP government recently also rolled back the lateral entry scheme for the bureaucracy to say it will include reservation in the future, sent the Waqf Bill to a Joint Parliamentary Committee under pressure from the opposition and its own allies, as well as withdrew the draft of the Broadcast Bill which also came under fire. Ahead of crucial state elections in Haryana, Maharashtra, J&K, and Jharkhand, to be followed by polls in Delhi next year, the Modi government is making swift moves.
Vaishnaw, however, said the UPS move “has nothing to do with elections”, while answering a query if the Election Commission of India had been approached for a nod before this decision as the model code of conduct is on in two states. To put it clearly, the Centre’s decision only impacts 23 lakh central government employees, but the state governments can now go ahead with UPS too at their cost. Congress governments in Himachal Pradesh and Rajasthan have announced a return to OPS.
Modi’s Approach, Says Govt
The government said Prime Minister Narendra Modi had followed the path of forming a committee, doing extensive consultations, and taking a “well-thought-out decision”. It also said that the government’s contribution under the scheme had first been raised by 10% to 14% under PM Modi’s reign, and now it has been raised to 18.5%. The UPS will be a contributory funded scheme, the government said. Apart from assured pension linked to inflation indexation, the UPS also offers a lump sum amount on retirement which will be equivalent to 10% of pay plus DA for every six months of service.
Family pension will also be given under UPS equivalent to 60% of pension immediately before demise. An assured pension of Rs 10,000 per month will be given after a minimum service of 10 years.
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