The Finance Minister has ruled out restoring the Old Pension Scheme, citing financial unsustainability, and introduced a new "assured payout" option for government employees.
Finance Minister Nirmala Sitharaman announced on Monday that the central government will not bring back the Old Pension Scheme (OPS). Speaking in Parliament, she explained that a new Unified Pension Scheme (UPS) has been introduced as an alternative for government employees. This new option aims to provide guaranteed benefits while maintaining fiscal responsibility, officially ending speculation about a return to the old system.
The primary reason for the decision, according to the Finance Minister, is the significant financial strain the OPS placed on the government's budget. She described the old system's liability as "unsustainable." In its place, the government has rolled out the Unified Pension Scheme, which was developed by a committee led by the former Finance Secretary to offer a middle ground between the old and new systems.
The new UPS, which is an option under the existing National Pension System (NPS), is designed to give employees an "assured payout." Sitharaman explained that an employee with at least 25 years of service could receive a pension equal to 50 percent of their average basic pay from their final year. For those with a shorter service period, a proportionate amount would be paid.
This directly impacts central government employees hired on or after January 1, 2004, who are currently under the market-linked NPS. While their demand for a full OPS restoration has been denied, the UPS provides them with a more predictable retirement income. The Finance Minister also confirmed that employees who opt for UPS would still be eligible for family and disability benefits under existing government rules.
The debate over pension schemes has been ongoing since the NPS was introduced in 2004 to replace the OPS for all new government recruits, except the armed forces. The NPS is a contribution-based system where retirement funds depend on market returns, which has caused uncertainty among employees. In recent years, several state governments have reverted to the OPS, intensifying pressure on the central government to do the same.
With this definitive statement, the government has clarified its position, offering a compromise instead of a full reversal. The focus will now be on the implementation of the UPS and how many employees choose this new option. In the same parliamentary session, the Finance Minister also highlighted the overall health of household finances, stating that the growth in financial assets has significantly outpaced the rise in liabilities, suggesting a stable economic outlook.
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