The newly introduced Unified Pension System (UPS) will be funded within the Centre’s fiscal projections, and it will not postpone pension expenditure, as the scheme will be contributory and financed each year, a top bureaucrat told Business Standard.
“It is fiscally prudent in the sense that we will have to absorb it each year in the Union Budget within our budgeted fiscal deficit,” the official said. “It is a fully funded contributory scheme… there will be no future burden… It will not go to any future government… In this, we will pay the liability, which is estimated currently at 18.5 per cent,” he explained.
He added that these features are what make the new system different from the old pension system (OPS). “We are not doing any ‘pay as you go’, which is the kind of thing the OPS does.”
Under the unified system, employee contributions shall remain unaltered at 10 per cent of basic pay plus dearness allowance (DA). The government contribution will increase from the present 14 per cent to 18.5 per cent.
“This 18.5 per cent will cost the Centre an extra Rs 6,250 crore in the first year and Rs 800 crore as a one-time expenditure for arrears,” the official pointed out.
Under the unified scheme, arrears will be paid to past retirees after adjusting for withdrawals already made by them.
The official underlined that the 50 per cent assured benefit comes with retrospective effect, along with arrears.
“All those who retired since the National Pension System (NPS) was introduced can opt for the new unified system,” he said. On whether existing subscribers can switch to the unified system, he said, “All existing subscribers can switch, and even all retired employees can get the benefit… Besides, we will have arrears for all those who retired till now and also those who will retire until March 31, 2025.
“Those who are taking voluntary retirement service (VRS) are also covered in the scheme, and this 18.5 per cent increase has factored that in as well,” he said.
Assured pension will be based on the ‘default mode’ of investment pattern notified by the Pension Fund Regulatory and Development Authority (PFRDA) and will consider full annuitisation of the individual pension corpus. In case the benchmark annuity is lower than the assured annuity, the shortfall will be made good. In case the individual employee corpus generates a higher-than-assured annuity (based on the investment choice exercised by the employee), the employee will be entitled to such higher annuity, the department of expenditure (DoE) under the Ministry of Finance said in a detailed release on Saturday night.
However, in case the annuity generated is lower than the default mode, the top-up provided by the government through the UPS will be limited to the benchmark annuity. Full assured pension will be available for a minimum qualifying service of 25 years, the DoE said.
For lesser service, starting from at least 10 years, a pro-rata assured pension will be given. Employees would have a choice to opt for the UPS. An employee could choose to continue with the NPS if they so desire.
Expected to benefit over 9 million employees
The scheme can also be adopted by state governments. This is expected to benefit over 9 million employees (2.3 million Central Government employees, 300,000 employees of Central Autonomous Bodies, and another 5.6 million employees of state governments and 1 million employees of State Autonomous Bodies, if adopted by the state governments).
“States will have to bear the burden if they adopt the system,” the official cited above said.
“While benefiting the employees, it will also safeguard the welfare of the common citizens because the scheme will be fully funded, thus preventing fiscal hardship to future generations of citizens,” the DoE underlined.
First Published: Aug 25 2024 | 12:14 AM IS