New Delhi: The Indian government has approved a new pension scheme guaranteeing federal employees 50% of their base salary as a pension, shifting from the current market-linked payout system. The decision comes in response to several states reverting to the older system of fully guaranteed pensions, which placed a significant fiscal burden on the government.
The Unified Pension Scheme (UPS) will benefit over two million federal employees and is set to roll out on April 1, 2025. Ashwini Vaishnaw, a cabinet minister, confirmed the plan, explaining that it will guarantee employees who serve a minimum of 25 years a pension equivalent to half their base salary from the last 12 months before retirement.
Under the current National Pension Scheme, employees contribute 10% of their base salary, with the government contributing 14%. The payout from this system is determined by market returns, with the majority of investments channeled into federal debt.
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Trade unions and opposition parties have long pushed for a guaranteed minimum pension, making it a key issue in recent general elections. The UPS addresses these concerns by offering a fixed pension, albeit at a considerable cost to the exchequer. The scheme is projected to cost the government approximately 62.5 billion rupees ($745 million) in the 2024-25 fiscal year, with annual costs varying based on the number of retiring employees.
