‘Fiscally sensible’: top official explains the central pension system
The recently introduced Unified Pension System (UPS) will be funded within the Centre’s fiscal projections and will not delay pension expenditure as the scheme will be funded annually through contributions, a senior official told Company standard.
“It is fiscally sensible in the sense that we have to absorb it every year in the Union budget within our budgeted deficit,” the official said. “It is a fully funded contribution scheme… there will be no future burden… It will not go to a future government… In doing so, we are paying the liability, which is currently estimated at 18.5 percent,” he explained.
He added that these features make the new system different from the old pension system (OPS). “We don’t do ‘pay as you go’, which is the kind of thing that OPS does.”
Under the unified system, employee contributions will remain unchanged at 10 percent of basic wages plus a high-cost allowance (DA). The government contribution will increase from the current 14 percent to 18.5 percent.
“This 18.5 per cent will cost the Centre an additional Rs 6,250 crore in the first year and Rs 800 crore as a one-time expenditure on arrears,” the official pointed out.
Under the uniform scheme, outstanding payments to former pensioners are paid out after taking into account the withdrawals they have already made.
The official stressed that the 50 percent insured benefit is retroactive, as are any outstanding payments.
“All those who have retired since the introduction of the National Pension System (NPS) can opt for the new unified system,” he said. On whether existing subscribers can switch to the unified system, he said: “All existing subscribers can switch, and even all retired employees can avail the benefit… Moreover, we have arrears for all those who have retired so far and also for those who are retiring till March 31, 2025.
“Those who participate in the Voluntary Pension Scheme (VRS) are also covered by the scheme and this 18.5 percent increase has also taken that into account,” he said.
The assured pension will be based on the ‘default mode’ of the investment pattern notified by the Pension Fund Regulatory and Development Authority (PFRDA) and will consider full annuity of the individual pension corpus. In case the benchmark annuity is lower than the assured annuity, the shortfall will be made up. In case the individual employee corpus generates higher than assured annuity (based on the investment choice made by the employee), the employee will be entitled to such higher annuity, the Department of Expenditure (DoE) under the Ministry of Finance said in a detailed press release on Saturday evening.
However, in case the annuity generated is less than the standard mode, the top-up provided by the government through UPS will be limited to the benchmark annuity. Fully insured pension will be available for a minimum qualifying service of 25 years, the DoE said.
For less employment, starting at at least 10 years, a pro rata insured pension is given. Employees would have the choice to opt for the UPS. An employee could choose to continue with the NPS if he so wishes.
This is expected to benefit over 9 million employees
The scheme can also be adopted by state governments. It is expected to benefit over 9 million employees (2.3 million employees of the central government, 300,000 employees of central autonomous bodies and another 5.6 million employees of state governments and 1 million employees of autonomous state bodies, if adopted by the state governments).
“States will have to bear the burden if they implement the system,” the official quoted above said.
“While benefiting workers, it will also protect the welfare of ordinary citizens as the scheme will be fully funded, thereby preventing financial hardship for future generations of citizens,” the DoE stressed.
First publication: Aug 25, 2024 | 12:14 AM IST