The Cabinet, on August 24, approved another new pension scheme called the Unified Pension Scheme combining the benefits of its earlier Old Pension Scheme and the facets of the New Pension Scheme.
The new scheme, applicable from the next fiscal, guarantees 50 percent of the last 12 month drawn salary to Central government employees as pension, along with the benefits of inflation-linked hikes post-retirement for employees serving the full tenure of over 25 years.
However, the employees will still contribute 10 percent of their income towards their pension each year, like they were doing under the New Pension Scheme.
But in the UPS, the contribution from the government is likely to increase to 18.5 percent from 14 percent earlier.
The Centre’s pension bill (excluding defence) stood at Rs 71,256 crore in FY24 as per revised estimates.
The NPS component was around 12 percent of the total pension spending, while Rs 51,152 crore went towards payments under the old pension scheme and other allowances.
The scheme is likely to add another Rs 7,000 crore to the Centre’s bill from April 2025.
Cabinet Secretary TV Somanathan, under whose stewardship as finance secretary, the government had set up a committee to review the old pension system, noted that the benefits will apply to all employees who have retired till March 31, 2025.
The UPS assures a lump-sum payment at retirement in addition to gratuity. The lump sum payment would amount to one month salary (pay + dearness allowance) for every five years of service.
The UPS also assures 60 percent of the pension of employees immediately after the demise as family pension on the lines of what OPS grants and assured minimum pension of Rs 10,000 per month after 10 years of service.
The UPS differs from the Guaranteed Pension Scheme proposal, which the Andhra Pradesh government was considering, which assured a 33 percent of last drawn salary as pension.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
