India introduces guaranteed pension scheme for federal government workers

• Indian government approves the Unified Pension Scheme (UPS) for federal employees.
• The scheme will start on April 1, 2025, for over two million federal government employees.
• Under the current National Pension Scheme, employees contribute 10% of the base salary.

On Saturday, the Indian government approved a new pension scheme that guarantees federal employees 50 percent of their base salary as a pension. This new scheme shifts away from the existing system, where payouts are tied to market returns.

The Modi government had to reassess the current pension system, which was introduced after major fiscal reforms in 2004, as some states reverted to the older, fiscally burdensome system of fully funding guaranteed pensions.

Ashwini Vaishnaw, a cabinet minister, announced that the Unified Pension Scheme (UPS) for India's more than two million federal government employees will start on April 1, 2025. Under the new scheme, government employees who complete at least 25 years of service will receive a pension equal to 50 percent of their base salary from the last 12 months before retirement.

Under the current National Pension Scheme, employees contribute 10 percent of their base salary, while the government contributes 14 percent. The final payout depends on market returns on this corpus, which is primarily invested in federal debt.

Trade unions and opposition parties have advocated for a guaranteed minimum pension for government employees, making it a major political issue in the recent general elections.

The minister said the UPS will likely cost the government about 62.5 billion rupees ($745 million) in the fiscal year 2024-25, with the annual expense fluctuating based on the number of retiring employees.

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