The cabinet has approved a Unified Pension Scheme (UPS) that promises government employees 50% of their last salary as a retiral payout, among other benefits. The main operative feature is that it assures the benefits.
This is unlike the existing National Pension System (NPS) in which the contribution is defined but the benefit varies. In effect, India is dialling back on a key reform implemented about two decades ago when it switched to NPS from the Old Pension Scheme (OPS) under which the benefit was defined but not the contribution.
With UPS, the government is attempting a middle path by bringing together the assurance of OPS and contributory nature of NPS. What is unclear, though, is whether the contributions will be enough to fund the payouts.
Also, states joining in could increase the number of beneficiaries and imperil their already-weak fiscal health. The decision’s political underpinnings are hard to miss too. The opposition had made a switch back to OPS a political rallying point.
That attack might be blunted now. It’s fine so long as the scheme doesn’t turn into a white elephant. But in general, politics must not prevail over sound economics.
