The government has unveiled the Unified Pension Scheme, a successor to the Old Pension Scheme. The plan guarantees government employees a lifetime salary equivalent to half of their last paycheck.
The government’s contribution will reportedly increase the bill, going from 14% to 18.5%. On Saturday, August 24, 2024, the NDA administration reversed the Atal Bihari Vajpayee government’s daring reform of India’s civil services pension system, which had been in existence for 21 years. It laid out a new “Unified Pension Scheme” (UPS) that, like the Old Pension Scheme, ensures government employees will get a lifetime benefit equal to half of their last received salary.
On Demand reports that states should expect things to get even more difficult under the new Unified Pension Scheme. The reason behind this is that it ensures employees receive half of their last twelve months’ salary and increases the government’s contribution.
The on-demand analysis found that governments will incur higher pension costs under the new model. The reason behind this is that states currently allocate approximately 13% of their revenue towards pensions.
Pensions receive an even larger portion of their tax revenue, constituting over 25% of their total tax expenditure.
The Reserve Bank of India projected that states will allocate over one-twelfth of their revenue to pensions in FY24.
Part of the pension expense of states is a 14% payment from present employees to the National Pension Scheme corpus, and part of it is pensions paid under the old pension scheme since many retiring employees still follow that system.
This won’t affect the payout amounts from the previous pension scheme, but it will increase the cost because the government’s portion will rise from 14% to 18.5%. For instance, a state’s annual pension contribution would increase from Rs 14 to Rs 18.5—a 32% increase.
According to the calculations on the reverse of the envelope, states pay between 10% and 14% of their total payroll into the NPS.
Revenue for the measure is anticipated to increase by at least half a percentage point due to a 32% increase in the state’s contribution. Even though their proportion would be reduced, payments to NPS retirees will certainly drive up the cost.
According to On Demand, the federal government and individual states would likely incur expenditures 269 percent higher in current value terms if they were to allocate half of the basic income to a pension rather than maintaining the current pension plan.
On August 24, the Cabinet gave its approval to the unified pension program. It transferred benefits from the previous pension plan, which had provided half of basic pay as a pension, to the new pension plan.
