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New Delhi: Finance minister Nirmala Sitharaman on Wednesday defended <\/strong>the Unified Pension Scheme (UPS) suggesting the new government scheme carefully balances the interests of the government employees and taxpayers, and ensures future generations are not burdened with a big pension bill.<\/p>\n<\/div>\n Speaking at the launch of the NPS-Vatsalya, a new pension scheme (NPS) derivative that allows parents and guardians to invest for their children, the finance minister said that the UPS had the best elements of the earlier OPS (Old Pension Scheme) and the current NPS.\u00a0<\/p>\n<\/div>\n The UPS was proposed in the annual budget as a measure for Central government employees. It has raised government\u2019s contributions towards pension fund while also assuring minimum gurateed pension to central government employees. The new proposals will mean an additional expenditure annually for the government which economists fear would hurt government finances and raise deficit that is already high and stood at 5.6% of GDP in FY24. The impact of UPS could also raise deficit target of 4.9% of GDP for FY25.\u00a0<\/p>\n<\/div>\n It provides an assured pension after retirement, which is what OPS did, but here it has other features as well, Sitharaman said.<\/p>\n<\/div>\n \u201cWhat UPS does is take care of the government employees\u2019 interest, and as the finance minister, I have a responsibility to say this: it also takes care of the taxpayer’s interest so that there is no overburdening of the future generations of heavy pension bill,” she said.\u00a0<\/p>\n<\/div>\n As the finance minister, I am taking care of finances now, but I have to be conscious that what I do now doesn’t burden these young people when they grow up and end up paying for these fancy or fantastic schemes that any government comes up with.\u201d\u00a0<\/p>\n<\/div>\n UPS, to be rolled out in April next year, will see the government’s pension contribution rise from 14% to 18.5% of employees’ basic pay plus dearness allowance (DA). This adjustment will lead to an additional annual expenditure of \u20b9<\/span>6,250 crore for the Centre, with a one-time cost of \u20b9<\/span>800 crore for arrears, according to a calculation provided by the government.\u00a0<\/p>\n<\/div>\n However, industry estimates that UPS could burden the government’s finances by approximately \u20b9<\/span>45,000 crore, affecting the fiscal deficit for FY25 by around 15 basis points. But the pension bill is expected to be stable at around \u20b9<\/span>2.4 trillion.<\/p>\n<\/div>\n A Macquarie report also highlights concerns over the scheme’s impact on fiscal health. While the UPS is not a complete return to the OPS, which was a fully defined benefit plan, it is expected to strain the exchequer.<\/p>\n<\/div>\n The finance minister said the NPS-Vatsalya scheme encourages a habit of saving by parents for their children. The scheme, she said, begins contributions towards a child\u2019s pension 15-20 years earlier than others as savings begin much earlier for the child before he\/she gets employed.\u00a0<\/p>\n<\/div>\n \u201cLet me highlight that the NPS scheme has generated competitive returns and has provided on an average compounded annual return of 9.5% to government employees since its inception and CAGR of 14%, 9.1% and 8.8% for investments in equity, corporate debt and government securities respective for the non- government sector.\u00a0<\/p>\n<\/div>\n If the money is invested 30% each in each of the schemes, the average return would have been -around 10.5%. So, this is the kind if returns you get under NPS and the child will get under NPS Vatsalya,\u201d the minister said.<\/p>\n<\/div>\n Parents and guardians can open pension accounts for their minor children under this scheme and start contributing at an early stage to reap the benefits of compounding growth. The child’s account can be converted into a routine pension account under the national pension scheme once they reach they reach the age of 18 years.\u00a0<\/p>\n<\/div>\n The scheme will fall under the purview of the pension fund regulator Pension Fund Regulatory and Development Authority (PFRDA).\u00a0<\/p>\n<\/div>\n In an effort to democratize the benefits of NPS-Vatsalya, the scheme for early investments for minors will allow parents and guardians to invest \u20b9<\/span>1,000 every year, making it accessible for families from all economic strata. It also offers flexible contribution options.<\/p>\n<\/div>\n Sitharam said the government has been focusing on providing schemes for different segments of the society. It had also launched Atal Pension Yojana for the poorer sections of tue society. The finance minister informed that the scheme today has 6.90 crore subscribers since launch in 2015 and accumulated money with the scheme stands at \u20b9<\/span>35,149 crore.<\/p>\n<\/div>\n Similarly, the NPS scheme today has 1.34 crore subscribers with asset under management of over \u20b9<\/span>13 trillion. Sitharaman said that in the last 10 years the CAGR growth that NPS has provided is to the tune of 37%. The \u20b9<\/span>13 trillion scheme has also grown at CAGR 43% and 27% for private sector and the government sector respectively.<\/p>\n<\/div>\n The function was also attends by minister if state for finance Pankaj Chaudhary, secretary financial services Nagaraju Maddirala and PFRDA chairperson Deepak Mohanty.<\/p>\n<\/div>\n<\/div>\n Catch all the Business News, Politics news,Breaking NewsEvents andLatest News Updates on Live Mint. Download TheMint News App to get Daily Market Updates.<\/p>\n More<\/span>Less<\/span><\/div>\nExpenditure on pension<\/h2>\n
Early investments for minors<\/h2>\n