No NPS rollback; UPS an attempt to improve it: FM Nirmala Sitharaman

'Fresh scheme not compulsory for states'

Union Finance Minister Nirmala Sitharaman on Tuesday said the Unified Pension Scheme (UPS) is “not a compulsion for states”, as they are capable of taking their own decisions.

She, however, expressed hope that most states would adopt UPS “as it has a lot of benefits for employees”.

“The UPS is an attempt to improve the existing National Pension System (NPS). There is no rollback or U-turn by introducing assured pensions under UPS. It is clearly a new package,” Sitharaman said in her first official comments on UPS during a select media briefing here.

Earlier, the Congress had taken a jibe at the government, calling it a “rollback government” after the introduction of UPS. In response, Sitharaman called the Congress a “naara (sloganeering) party”.

Sitharaman said UPS aims to address issues arising from the Old Pension Scheme (OPS) and the NPS.  “The benefit under UPS will be given on a pro-rata basis if the service period is less than 25 years. The Pension Fund Regulatory and Development Authority will continue to manage funds under UPS,” Sitharaman said.

She also clarified there would be no changes to the tax treatment under UPS.

In a significant enhancement to pension benefits for central government employees, the Union Cabinet on Saturday approved the UPS, which offers an assured pension of 50 per cent of the average basic pay drawn over the past 12 months prior to superannuation, for a minimum qualifying service of 25 years. 

Separately, discussing the upcoming Goods and Services Tax (GST) Council meeting scheduled for September 9, Sitharaman said rate rationalisation would be on the agenda. “However, no decision will be taken in the next meeting. The group of ministers will hold more meetings to finalise the report,” she said.

The UPS, effective from April 1 of the next financial year, will benefit over 2.3 million central government employees, according to the government. The pension amount will be proportionate for shorter service periods, down to a minimum of 10 years.

According to the government, the expenditure for arrears will be Rs 800 crore with an annual cost increase of around Rs 6,250 crore in the first year.

The scheme also includes two additional components: family pension and assured minimum pension.

Under the assured family pension component, the employee’s family will receive 60 per cent of the immediate pension upon their demise. The UPS includes an assured minimum pension of Rs 10,000 per month upon superannuation after a minimum of 10 years of service.

In March 2023, the Narendra Modi government had set up a committee led by former finance secretary T V Somanathan to explore ways to enhance pension benefits under NPS without reverting to the fiscally unsustainable, non-contributory OPS.