The OPS was a defined benefit scheme solely for government employees where employees were promised a guaranteed pension based on 50% of your last drawn basic salary, with no employee contributions required. The government fully funded this pension and adjusted it for inflation.
But with the rise of pension burden, a New Pension scheme NPS was launched in 2004. NPS provides a market-linked pension. Employees contribute 10% of their salary, while the government contributes 14% and the total fund is invested in the stock market. The final pension amount depends on the stock market performance. So here both employees and the government contribute to the fund, with the pension amount being variable based on market conditions.
It brought uncertainty in the pension amount which worried pensioners due to the lack of assured pension. Therefore, many state governments have decided to go back to the OPS which will increase the pension burden of the state governments.
To look into the matter the central government constituted a committee under Finance secretary T V Somanathan. Based on the recommendations of the committed the central government has approved an amended pension scheme called as the Unified Pension Scheme (UPS), set to take effect from April 1, 2025. This new scheme aims to provide central government employees with an assured pension after retirement.
Under UPS, retired government employees who complete at least 25 years in service will receive 50% of their last drawn 'basic' salary as a monthly pension. This amount increases with inflation. Upon the retiree's death, their family continues to receive 60% of the pension benefits. For service periods between 10 and 25 years, the pension is proportional.
In UPS, Employees will contribute 10% of their salary, matching the NPS contribution, but the government's contribution rises to 18.5%, up from the 14% under NPS. The UPS pension amount is to be adjusted for inflation.
The UPS is likely to benefit the 23 lakh central government employees by offering a reliable pension structure. If the states also follow the UPS, total 90 lakh government employees are to benefitted. Employees transitioning from NPS to UPS will have their arrears paid and will benefit from the assured pension feature.
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