Government Clarifies No Plans to Restore Old Pension Scheme for Central Employees
India’s central government employees will not see a revival of the Old Pension Scheme (OPS) under the National Pension System (NPS), according to Finance Minister Nirmala Sitharaman. During a parliamentary session, she emphasized that the government has moved away from OPS due to its unsustainable fiscal implications. Instead, the Unified Pension Scheme (UPS) has been introduced as a more sustainable alternative. The OPS, which was previously used for central government staff, was replaced in favor of NPS, a defined contribution model introduced for employees joining service on or after January 1, 2004. Sitharaman highlighted that the decision to phase out OPS was driven by the need to ensure fiscal sustainability and reduce the financial burden on the exchequer.
Unified Pension Scheme Offers Defined Benefits with Fiscal Responsibility
The UPS, introduced through a government notification on January 24, 2025, aims to provide assured retirement benefits while maintaining financial stability. Under this scheme, employees retiring after a minimum of 25 years of qualifying service will receive 50% of their twelve-month average basic pay as a payout. For those with shorter service periods, the payout will be proportionate. Sitharaman explained that the UPS includes provisions for family definitions to ensure comprehensive coverage, while also safeguarding the fund’s long-term viability. Additionally, employees opting for UPS retain the flexibility to access benefits under the CCS (Pension) Rules, 2021, or the CCS (Extraordinary Pension) Rules, 2023, in the event of the employee’s death during service or disability.
Household Financial Position Shows Improvement Amid Rising Liabilities
The government also shared insights into the evolving financial landscape of Indian households. According to Sitharaman, the stock of household financial liabilities increased by 5.5 percentage points between March 2020 and March 2024, while household financial assets rose by 20.7 percentage points during the same period. This has led to an overall improvement in net financial position, with households now holding more assets than liabilities. The Reserve Bank of India (RBI) data indicates a moderate increase in retail loan penetration, reaching 31.48% in March 2025 from 30.94% in March 2024. However, the growth rate of retail loans has slowed to 14.05% year-on-year, reflecting a more stable lending environment.
Bank Asset Quality Remains Stable Despite Loan Growth
Despite the increase in retail loans, the asset quality of scheduled commercial banks has remained largely stable. The Gross Non-Performing Assets (GNPA) ratio for the retail loan segment stands at 1.18% as of March 2025. Sitharaman noted that the share of unsecured retail loans is relatively low at 25% of total retail loans and 8.3% of aggregate gross advances, indicating a cautious approach to credit distribution. Furthermore, the latest data from the National Statistics Office (NSO) shows a rise in net household financial savings, from Rs 13.3 lakh crore in 2022-23 to Rs 15.5 lakh crore in 2023-24. This growth in savings is expected to mitigate systemic risks to the banking sector’s asset quality.
Fiscal Responsibility and Pension Reforms Shape Future Policies
The government’s focus on fiscal sustainability continues to influence policy decisions, particularly in pension reform. The shift from OPS to UPS underscores the administration’s commitment to balancing employee benefits with long-term economic stability. Sitharaman’s remarks highlight the importance of structured financial planning for both public servants and households. As India navigates economic challenges, the emphasis on sustainable pension schemes and prudent financial management will likely remain central to policy frameworks. The upcoming fiscal year will be closely watched for further developments in pension reforms and household financial strategies.
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