UPS could give states fiscal respite, but pensions still fraught with challenges

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Also Read: Unified Pension Scheme: a suitable compromise for pensioners? The upcoming variant, the unified pension scheme (UPS), can halt states from reverting to OPS and instead shift to UPS. The UPS strikes a middle ground by reverting to a defined benefit system, but with some contribution from employees. For 2024-25, the Centre’s projected spending on pensions is ₹2.67 trillion.

The single biggest group in this is defence personnel, with about ₹1.41 trillion earmarked for them. In the last nine years, pension payments to defence personnel have amounted to 23-27% of total defence expenditure. Defence pensions are also among the categories of pensions under dispute.

Retired defence personnel have agitated for years for a ‘one rank, one pension’ (OROP) scheme. This would allow retired personnel to draw the same pension for a given rank or length of service, irrespective of the date of retirement. This would enable older pensioners to benefit from increases in pay of existing service members of similar ranks.

While the current government introduced a version of the OROP in 2016 (causing defence pension expenses to rise sharply), it has continued to face criticism from retired personnel. The Centre’s projected 2024-25 spending of ₹2.67 trillion on pensions doesn’t depict the full picture. While it covers defence pensions, it excludes those of the Indian Railways and public sector enterprises or banks.

For 2024-25, the Indian Railways has budgeted ₹67,000 crore towards pensions, amounting to 24% of its total revenues. The Centre does not directly pay railways pensions. However, since the Railways doesn’t generate enough revenues to service its pension liabilities, the Centre is on the hook for such commitments indirectly.