One of the major attractions of a government job is the security it offers — the pay is good and regular, market uncertainties do not disrupt the capability to pay, and it comes with a handsome set of retirement benefits, such as a lifelong pension. Under the Old Pension Scheme, employees received half of their last salary drawn plus dearness allowance as pension. It was not contributory; the amount was guaranteed. However, it was not funded and, hence, over time, the budgetary strains on government expenses began to rise, reaching a point where the guarantee to pay pension would have become a problem. As a result, the National Pension Scheme was introduced in 2009. Under this scheme, the employee made a monthly contribution of 10% of salary and the government matched it with a contribution of 14%. This constituted a kitty which, if invested in financial markets, would yield returns. But what was available at the end of the tenure of an employee was uncertain. Even if they chose to set aside some amount for an annuity, it would be quite small compared to the OPS.

The Unified Pension Scheme announced by the Central Government is a half-way solution. The employee continues to pay 10% but the government tops it up with an 18.5% contribution and a guarantee of a pension that would be 50% of the last drawn salary along with DA. This scheme offers certainty, and the amount is the same as what would have prevailed under the OPS. The only difference is that the employee makes a token contribution of 10% during the working years. This option is better for the employee than the NPS but still worse than the OPS where no contribution from the employee was required. The UPS is fiscally less strenuous for the government, but not free from possible stresses. The assurance means that a payout is fixed, but if the returns are lower, then the kitty would fall. This would mean either higher contributions from employees, or larger government borrowing, or delays and disruptions in the payouts. The UPS is significantly better than the NPS. From the government’s point of view, the social demand for old-age benefits is likely to become stronger and more widespread, transcending the government sector. It is time for the fiscal arithmetic to be worked out. The potential for higher taxes remains largely untapped, especially in a nation with an unacceptable degree of economic inequality.