By Sadaket A Malik
The recently announced Unified Pension Scheme (UPS) by the central government has left employees seeking further clarification on various aspects, including the exit payout ratio, future Pay Commissions’ impact, tax benefits, and pension hikes for older retirees. Employees Unions have voiced concerns, claiming that the scheme continues to engage in “market gambling” with pension funds, raising doubts about its long-term viability and fairness.
Under the UPS, employees are required to serve at least 25 years to qualify for an assured pension. This pension will be paid monthly after the employee reaches 60 years of age and is calculated as 50% of the average monthly salary during the final 12 months of service. However, employees and unions are pushing for a reduction in the required years of service from 25 to 20. This change would particularly benefit those who enter government service later in their careers, providing them with better coverage under the new scheme.
Additionally, there are demands for an increase in monthly contributions to build up the lump-sum payment, as well as the introduction of an additional pension for retirees over the age of 80, similar to the provisions under the Old Pension Scheme (OPS).
Despite the scheme’s announcement, many crucial details remain unclear. Employees are seeking answers on key issues such as the ratio of the lump-sum payout upon exit, the revision of pensions by future Pay Commissions, the continuation of tax benefits, and the potential increases in pension for those reaching the ages of 80, 85, 90, 95, and 100. Full clarification on these matters is expected only when the detailed notification for the UPS is released.
Union representatives have criticized the scheme, questioning why MPs and MLAs receive pensions without any personal contribution, while government employees are required to contribute to their retirement funds. They argue that the UPS, with its reliance on market investments, does not adequately protect employees and retirees.
A significant point of contention is the government’s plan to invest the ₹6 lakh crore accumulated under the National Pension System (NPS) in the stock market. Critics have raised concerns about the potential risks involved in investing employees’ retirement savings in fluctuating market conditions. They suggest that if the government were truly committed to protecting the financial security of retirees, it should increase its contribution from the current 18.5% to 28.5%, while also covering the 10% employee contribution. Such a measure, they argue, would restore the OPS rather than introducing what they see as a complicated and risky alternative.
Critics have pointed out several flaws in the UPS. One major concern is the uncertainty surrounding how the pension will be calculated and distributed. Under the current NPS, retirees receive 60% of their PRAN (Permanent Retirement Account Number) balance as a lump-sum payment, which many invest in mutual funds through a Systemic Withdrawal Plan (SWP). According to some, the returns from SWPs are five times higher than the pension provided by the government. Employees argue that they do not want these risky financial plans and have urged the government to restore the OPS, which provides guaranteed benefits without requiring personal contributions.
Further criticism revolves around the fear that employees who serve the government for 35-40 years and opt for the UPS will essentially hand over their entire PRAN savings to the government, only to receive a pension that may not adequately reflect their years of service and contributions. Left unions argue that the state government’s “Guaranteed Pension Scheme” under the UPS is deceptive and does not provide the financial security employees deserve.
As the UPS moves forward, government employees and unions remain concerned about its lack of clarity, reliance on market investments, and the overall security it offers to retirees. They are advocating for a return to the Old Pension Scheme, which they believe is more financially viable and fair, ensuring better protection for those who dedicate their lives to government service. Until the detailed notification is published, questions about the UPS will persist, leaving many uncertain about their future financial security in retirement.
- Views expressed in the article are the author’s own and do not necessarily represent the editorial stance of Kashmir Observer
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