The just-announced Unified Pension Scheme for central government employees will be available only for those who are currently subscribers of the New Pension Scheme (NPS), including retirees.

The new scheme guarantees employees 50 per cent of their average basic pay over the last 12 months before retirement as a pension for a minimum qualifying service of 25 years against a market returns linked payout under the NPS.

According to the scheme approved by the Union Cabinet, the pension will be proportionate for a lesser service period of up to a minimum of 10 years. Also, assured pension of Rs 10,000 per month on superannuation after a minimum of 10 years of service.

The scheme has been brought out to address the concerns of government employees over NPS, which came into effect from January 1, 2004.

Under the old pension scheme (OPS), effective before January 2004, employees got 50 per cent of their last drawn basic pay as pension.

Unlike the old pension scheme, UPS is contributory in nature, wherein employees will be required to contribute 10 per cent of their basic salary and dearness allowance while the employer's contribution (the central government) will be 18.5 per cent.

Under the NPS, the employer contribution is 14 per cent, and the employee contribution is 10 per cent. However, the eventual payout depends on the market returns on that corpus, mostly invested in government debt.

Employees, under the OPS, were not required to make any contribution. They, however, contributed to the General Provident Fund (GPF). The accumulated amount, along with interest, was paid to the employee at the time of retirement.

As the NPS was less attractive than the OPS, several non-BJP-ruled states decided to go back to the old pension scheme, which offered a DA-linked benefit. This prompted the Centre to constitute a committee in April 2023, under former Finance Secretary and now Cabinet Secretary-designate TV Somanathan to suggest improvement in the NPS architecture.

Fulfilling the long pending demands of government employees ahead of assembly elections in Haryana and Jammu and Kashmir, the Union Cabinet on August 24 approved the UPS, which will provide assured pension to 23 lakh eligible central government employees.

Those opting for the UPS will not be able to switch back.

The UPS will put an additional burden of Rs 6,250 crore on the exchequer per year. The expenditure will vary every year according to variations in the number of employees.

In addition, there will be an arrear of Rs 800 crore that has to be paid under the National Pension System (NPS) to employees retiring before March 31, 2025. If these retirees opt for UPS, they will receive arrears.

"UPS is being implemented by the Central Government, benefitting 23 lakh central government employees," Information & Broadcasting Minister Ashwini Vaishnaw said on X on Sunday.

If states also adopt the UPS architecture, a total of over 90 lakh government employees, who are presently on NPS, would be benefitted, he added.

On Sunday, Maharashtra, where assembly elections are due later in the year, became the first state to announce the adoption of the UPS for its employees.

RSS-affiliate Bharatiya Mazdoor Sangh (BMS) said though the government has attempted to overcome the shortcomings of the NPS, there are still some issues compared to OPS.

BMS will decide its future course of action only after a detailed study of the UPS after it is notified.

All India Trade Union Congress (AITUC) said it is nothing but an extension of the existing NPS.

The trade union expressed apprehensions that UPS will have a lot of aberrations once implemented.

AITUC reiterated that it will continue to fight for the restoration of the non-contributory OPS.

Icra Chief Economist Aditi Nayar said assured pensions will add to the government's committed expenditure in the future while reducing the uncertainty for employees.

"This will have to be built into the fiscal consolidation roadmap going ahead," Nayar added.

The UPS reflects a thoughtful approach to long-term social security, addressing concerns about the adequacy and sustainability of pension benefits in a rapidly changing economic landscape, said Shardul Amarchand Mangaldas & Co Partner Dorothy Thomas.

"This move signals the government's commitment to providing robust support for its workforce, enhancing financial stability for millions of government employees across the country," Thomas said.

Except for the headline, this story has not been edited by The Telegraph Online staff and has been published from a syndicated feed.