The central government has announced the Unified Pension Scheme (UPS), reigniting discussions surrounding pensions. Starting from the next fiscal year, not only will the UPS be implemented, but the government’s financial burden may also increase by over ₹6,200 crore. Over the past few days, there has been considerable discourse regarding the UPS, the National Pension System (NPS), and the Old Pension Scheme (OPS). But do you know why pensions are essential for the average person, particularly for the working class? It’s also crucial to consider the significance of the pension scheme for the government. Let’s delve into the statistics to understand the relationship between pensions, the common citizen, and the government.
Various Pension Schemes
Currently, there are multiple pension schemes available for government employees, including the National Pension System, the Old Pension Scheme, and the newly introduced Unified Pension Scheme. Furthermore, the government has also initiated the Atal Pension Yojana (APY) specifically designed for the underprivileged. Under this scheme, individuals can deposit a minimal amount and enjoy pension benefits after a certain period. The APY caters primarily to those in the informal sector with low monthly incomes. Individuals aged 18 to 40 can apply for the scheme, and those who enroll at the age of 18 will need to invest ₹210 monthly to receive a pension ranging from ₹1,000 to ₹5,000 after reaching the age of 60.
Pension Plans from Government and Private Sectors
Besides government announcements, various public and private banks in the country also offer pension plans. For instance, the State Bank of India (SBI) offers the SBI Life – Saral Pension Scheme, which allows individuals aged 40 or above to invest. This pension scheme also provides tax benefits. Additionally, the Life Insurance Corporation (LIC) has its own Saral Pension Scheme, which is quite popular and allows both husband and wife to invest together. Similar to SBI’s offering, LIC’s scheme provides tax benefits and can be initiated at the age of 40.
Why are Pension Schemes Necessary?
The paramount question remains—why are pensions necessary? Can one manage without a pension? We constantly come across discussions about retirement plans through various media platforms, including television, radio, and newspapers. Pensions are a critical component of retirement planning. Government employees previously received pensions via OPS and then NPS; starting in 2025, the UPS will provide pensions. In essence, pensions are intended to assist individuals in covering their expenses post-retirement. In the private sector, numerous pension investment plans are available, allowing individuals to receive either a lump sum or monthly amounts post-retirement. Such arrangements are provided by several government banks and LIC schemes, making it easier for individuals to manage their lives after retirement.
Government Expenditure on Pension
Understanding the government’s spending on pensions is crucial, as it directly impacts the national treasury. According to data, the government’s pension expenditure has increased 4.4 times over the past 16 years—an undeniably significant rise. In FY 2021, there was a 25% increase in pension spending, coinciding with the peak of the COVID-19 pandemic. In FY 2020, the government spent ₹50,115 crore on pensions, which surged to ₹62,725 crore in FY 2021, reflecting a continuous upward trend over the last three years. Projections indicate that by FY 2024-25, the government may spend over ₹79,000 crore on pensions.
First Double-Digit Increase in Four Years
With the implementation of the Unified Pension Scheme in the upcoming fiscal year, experts anticipate that, for the first time since the pandemic year, there will be a double-digit increase in pension expenditures. Following the introduction of the UPS, the government is estimated to incur an additional burden of ₹6,250 crore, indicating that by FY 2025-26, total pension expenditures may exceed ₹85,000 crore. This signifies an over 70% increase in pension-related spending from FY 2020-21 to FY 2025-26.
Substantial Contribution from OPS
According to government data, a significant portion of pension expenditure goes towards the Old Pension Scheme. Additionally, 12% of these funds are directed towards pension funds. Experts speculate that as UPS rolls out, pension expenditures may witness an increase after previously projecting a 1.64% decline in FY 2025. With the impending implementation of the 8th Pay Commission, expected from January 1, 2026, salary increments will likely lead to a corresponding increase in pensions.
