Editorial: Marching forward to the past

Eighty days since the chastisement by voters, it is clear that this is going to be a tenure of u-turns for the Narendra Modi government. Swallowing its mighty ego from Modi 2.0, it has meekly retraced its steps on a slew of hasty decisions in the past few weeks: the Broadcasting Bill, lateral entry in the Civil Services, the Waqf Bill and withdrawal of indexation for long-term capital gains tax. The decision last Saturday to bring in a new pension scheme titled the Unified Pension Scheme (UPS) is in reality an addition to that list, although it’s been presented to us as new wine in a new bottle.

By offering a new pension regime to central government employees from April 1, 2025, what the government has done is to turn its back on the purely contributory New Pension Scheme (NPS) instituted by the erstwhile BJP-led government of Atal Behari Vajpayee and return to the defined benefit system of the Old Pension Scheme (OPS) that used to exist prior to 2004.

So, the new system will pay, as the OPS did, a guaranteed life-long pension to retiring government employees with at least 25 years of service. The difference is in how the pension will be computed: Where the OPS paid a retiring staffer 50% of his or her last drawn salary, the UPS computes it per the average basic salary drawn over the last 12 months before retirement. For employees with a minimum of 10 years of service, but less than 25, pension will be proportionately adjusted, with the minimum being Rs 10,000 per month.

The new system also returns to another important feature of the OPS: the family pension paid to an employee’s spouse in the event of his or her death. This in the UPS has been pegged at 60 per cent of the monthly pension payable to the employee. However, the UPS retains the contributory feature of NPS. Employees will continue to contribute 10 per cent of their basic salary towards their retirement corpus, and the government will put up 18.5 per cent, up from 14 per cent in the NPS.

All in all, it sounds like a sweet deal to the 23 lakh central government employees who will have the option of switching to the more secure UPS, or staying with NPS, a more dynamic but risk-laden scheme modelled on the 401K scheme of the US. The UPS entails an additional cost to taxpayers of Rs 6,250 crore in the first year, largely on account of the government's contribution being raised to 18.5% of the basic pay and linking indexation to the Consumer Price Index for industrial workers rather than dearness relief. This is a considerable addition to the Rs 79,241 crore the government currently budgeted for pensions in FY2025.

The New Pension Scheme was launched in 2004 for the purpose of lightening the fiscal burden on the Union government. Even then, the annual pension bill grew at a compounded rate of 10 per cent since 2014. And now this extra burden due to the UPS amounts to a significant trackback by the Modi regime. These u-turns hint at a lack of clarity in the high councils of this government, a lack of certainty on what the true nature of its governance should be. Is this a government of bold reform or an appeasement party? Is this government coming or going?