The climbdown on the pension scheme adds to the long list of policy reversals by the NDA government in its third term in the face of an emboldened opposition, with an increased strength in the Lok Sabha, and more assertive coalition partners. In a welcome move to address the concerns of the employees, the Centre has unveiled the Unified Pension Scheme (UPS), a repackaged guaranteed version that is almost similar to the Old Pension Scheme (OPS), promising a pension of 50% of the average basic pay of the last 12 months before retirement and a minimum pension of Rs 10,000 for those who worked for at least 10 years. The Centre was already under pressure as several opposition-ruled states have reversed the old pension schemes.
The Centre’s share towards the scheme has been increased from 14% under the National Pension Scheme (NPS) to 18.5%. The backtracking on NPS, introduced in 2004, is a political response to the growing nationwide demand to revert to the OPS. The government has sought to strike a balance by integrating the features of the OPS and NPS in the modified scheme. The Centre argues that the UPS, to benefit over 23 lakh employees, is fiscally more prudent as it is a funded, contributory scheme, unlike the OPS. A committee led by former Finance Secretary TV Somanathan devised a middle path that involves employee contributions and enhanced share from the Centre. The likely additional strain on the Centre and the states now has official sanction. Striking a balance between the employees’ aspirations and fiscal prudence must be the guiding principle.