India’s Finance Minister Nirmala Sitharaman has clarified that the newly launched Unified Pension Scheme (UPS) is a new offering and not a rollback of the existing New Pension Scheme (NPS) and Old Pension Scheme (OPS). This statement comes in response to accusations from the Opposition Congress party who have alleged that the UPS is a U-turn on the pension scheme.
Sitharaman emphasized that the UPS is a “new package” which is distinct from both the OPS and NPS. She stated that the UPS is “better and will satisfy most government employees,” highlighting that the scheme has been carefully designed to benefit employees and manage government resources effectively. The Finance Minister expressed hope that most states would adopt the UPS due to its benefits for employees.
Addressing the Congress’s claims of a U-turn, Sitharaman countered that the government has simply improved the pension scheme, not reversed its stance. She criticized the Congress for making comments without conducting thorough research, suggesting that the party has become driven by slogans rather than thoughtful policy analysis.
Sitharaman also defended previous decisions, such as the restoration of indexation benefits as part of long-term capital gains tax (LTCG), stating that these were “tweaking” and not rollbacks.
Differences Between UPS, OPS, and NPS
To understand the UPS better, let’s compare it to the existing OPS and NPS:
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Old Pension Scheme (OPS)
: Implemented before January 2004, the OPS provided employees with 50% of their last drawn basic pay as pension. Employees did not contribute to the scheme but contributed to the General Provident Fund (GPF). Their accumulated GPF amount, along with interest, was paid upon retirement.*
New Pension Scheme (NPS)
: Under the NPS, the employer (government) contributes 14%, and the employee contributes 10%. The final payout depends on the market returns on the accumulated corpus, which is primarily invested in government debt. The NPS, however, was less attractive than the OPS, leading several non-BJP-ruled states to revert to the old pension scheme, which offered a DA-linked benefit. This prompted the Centre to form a committee in April 2023, led by former Finance Secretary and now Cabinet Secretary-designate T V Somanathan, to suggest improvements to the NPS architecture.*
