v-somanathan-clarifies-ups-fiscal-impact

V Somanathan, Chairman of the Pension Panel, clarified on Monday  that the fiscal projections for the new Unified Pension Scheme (UPS), which was approved by the Union Cabinet on Saturday, have been meticulously calculated.

He emphasised that the 18.5% contribution from the Union government encompasses the costs for current employees under the National Pension Scheme (NPS).

Somanathan explained that this contribution not only covers future expenses but also includes provisions for past costs for employees already enrolled in the scheme.

He estimated that the fiscal impact in the first year will be approximately ₹6,250 crore, with an additional ₹800 crore allocated for arrears for retirees.

“The 18.5% contribution factor accounts for both future and past costs. The amount required for previous years for existing staff is included in this percentage. The fiscal impact for the first year will be about ₹6,250 crore, plus ₹800 crore in arrears for those who retired before the scheme’s introduction. There will be no additional costs or one-time impacts,” Somanathan said.

The government unveiled the comprehensive roll-out of the UPS for Central Government employees on Saturday. The new scheme, set to benefit around 2.3 million employees, is expected to be implemented from April 1, 2025. It will also be available on an optional basis to state governments for their employees.

Somanathan highlighted that the UPS is financially more sustainable compared to the previous Old Pension Scheme (OPS). "The UPS remains within the framework of a contributory funded scheme, unlike the OPS, which was unfunded and non-contributory,” he noted.

He further clarified that the new scheme will extend to all government employees who retired under the NPS since its inception in 2004.

“Although the UPS will commence on April 1, 2025, those who have retired since the start of NPS, as well as those retiring until March 31, 2025, will be eligible for all benefits under the UPS. They will receive arrears, adjusted for amounts already received, with interest at PPF rates,” Somanathan concluded.