The central government has approved a new Unified Pension Scheme (UPS) for central government employees, which will be effective from April 1, 2025. Here are the key highlights:
This scheme aims to align the benefits with the old pension scheme and address concerns over market fluctuations12.
Union Minister Ashwini Vaishnav briefs the media on Cabinet decisions, in New Delhi. (Express Photo by Amit Mehra)
The Union Cabinet on Saturday approved a new Unified Pension Scheme (UPS) for Central government employees which assures 50 per cent of the average salary drawn over the last 12 months of their service as pension.
To ensure this, the government has decided to raise its contribution towards the pension corpus to 18.5 per cent of the basic pay and dearness allowance of employees from 14 per cent now. This is estimated to entail an additional cost of Rs 6,250 crore in the first year. The employees’ contribution will, however, remain unchanged at 10 per cent of basic pay plus dearness allowance.
To be effective April 1, 2025, the UPS will be available to all those who have completed 25 years of service in the government. It’s other key features include a family pension to the spouse equal to 60 per cent of an employee’s pension income after death, a minimum pension of Rs 10,000 for those who have completed a minimum 10 years of service, inflation indexation to take care of price rise of goods and services, and a facility to withdraw a lump sum amount at retirement.
The Cabinet announcement comes more than a year after the government had announced the formation of a four-member committee under the then Finance Secretary and now Cabinet Secretary TV Somanathan in April 2023 to review the pension system for government employees.
Unified Pension Scheme
Assured Pension | 50% of the average basic pay drawn over the last 12 months prior to superannuation for a minimum qualifying service of 25 years Proportionate for lesser service period up to a minimum of 10 years of service |
Assured Family Pension | 60% of the pension of the employee immediately before her/his demise |
Assured Minimum Pension | 10, 000 per month on superannuation after a minimum of 10 years of service |
Inflation Indexation | On assured pension, on assured family pension and assured minimum pension Dearness Relief based on All India Consumer Price Index for Industrial Workers (AICPI-IW) as in case of serving employees |
Other features | Lump-sum payment at superannuation in addition to gratuity * 1/10th of monthly emolument (pay + DA) as on the date of superannuation for every completed six months of service Advertisement * This payment will not reduce the quantum of assured pension |
Prime Minister Narendra Modi said the UPS will ensure dignity and financial security for the government employees. “We are proud of the hard work of all government employees who contribute significantly to national progress. The Unified Pension Scheme ensures dignity and financial security for government employees, aligning with our commitment to their well-being and a secure future,” he posted on social media platform X.
Under UPS, the pension corpus would be divided into two parts and separately invested. The first part equal to 10 per cent of the contribution of the employee and the government towards the corpus will be invested as per the choice of investment made by the individual employee. The second part equal to 8.5 per cent of the government’s contribution towards the pension will be pooled and invested separately.
The assured pension will be based on the ‘default mode’ of investment pattern notified by the pension regulator and considering full annuitisation of 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 higher than assured annuity (based on investment choice exercised by the employee), the employee will be entitled to such higher annuity. In case however, the annuity generated is lower than the default mode, the top up provided by government through UPS will be limited to the benchmark annuity.
Announcing the decisions taken by the Cabinet, Information and Broadcasting Minister Ashwini Vaishnaw said the UPS stood on five pillars. The first pillar deals with an assured amount to employees after having applied actuarial projections. An assured pension of 50 per cent will be given to employees which would be linked to the average basic pay given in the last 12 months of service before superannuation of the employee. “The qualifying service would be 25 years of service. If it’s less than 25 years but more than 10 years of service, then it would be provided on a pro-rata basis,” Vaishnaw said.
Pillar two deals with assured family pension in case of death of an employee. If some employee dies, then 60 per cent of the pension given just before his or her death would be provided to the deceased employee’s family after his or her death, the minister said.
Other features of the UPS include minimum pension of Rs 10,000 to employees whose service tenure is less and sufficient amount would not be there for pension for central government employees or those associated with the existing National Pension System (NPS). An assured minimum pension of Rs 10,000 per month would be given on superannuation after minimum 10 years of service to employees, an official statement said.
Inflation indexation would be done for assured pension, assured family pension and assured minimum pension. The Dearness Relief will be based on All India Consumer Price Index for Industrial Workers (AICPI-IW) as in the case of service employees, the statement said.
Also, a lumpsum payment would be made to employees at the time of superannuation in addition to gratuity. This amount would be collected every six months of service and would be 10 per cent of monthly emoluments, that is, pay and dearness allowance combined together. This payment will not reduce the quantum of assured pension, the statement said.
Vaishnaw said this is expected to benefit 23 lakh employees and the new UPS would be optional for existing Central government employees enrolled under the NPS. Additionally, he said, states can use this UPS architecture. “If state employees also join this, then this is expected to benefit 90 lakh employees,” he said.
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