India to get Universal Pension Scheme: What is it and who will benefit?

A secure retirement is a common goal for all, yet pensions have historically been limited to government and private sector workers.

The government is now developing a Universal Pension Scheme, which will allow individuals to make voluntary contributions and receive pension benefits upon retirement.

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As per multiple media reports, the Union Ministry of Labour and Employment is currently working on the initiative.

India already offers various pension schemes for different segments of society. How will this new scheme be different? What pension schemes are currently available? Will it replace the **National Pension Scheme (NPS)** ?

Let’s find out:

Explained: What is the Universal Pension Scheme?

The government is developing a universal pension scheme that will be accessible to all citizens, including those in the unorganised sector, NDTV reported, citing Labour Ministry sources.

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Currently, individuals in the unorganised sector, such as construction workers, domestic staff, and gig workers, do not have access to large government-backed savings schemes.

The scheme will also be available to salaried employees and self-employed individuals.

According to the report, the idea behind the ‘universal pension scheme’ is to simplify the country’s pension and savings structure by potentially incorporating some existing schemes. It would serve as a secure voluntary savings option for all citizens.

The initiative seeks to expand social security beyond traditional employment and offer a structured pension system to a wider section of society.

A senior government official told The Economic Times that the scheme would be open to everyone, as it would not be tied to employment. This would allow self-employed individuals and unorganised sector workers to contribute and build their pension over time.

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The **Employees’ Provident Fund Organisation (EPFO)** is overseeing the development of the scheme. Once the framework is finalised, discussions with stakeholders will take place to ensure smooth implementation, the report said.

A major distinction between the proposed universal pension scheme and existing schemes under the EPFO is that contributions will be entirely voluntary, with no financial input from the government.

The proposed scheme is likely to incorporate existing pension programmes such as the Pradhan Mantri Shram Yogi Maandhan (PM-SYM) and the National Pension Scheme for Traders and Self-Employed (NPS-Traders). These schemes currently provide a monthly pension of Rs 3,000 post-retirement, with contributions between Rs 55 and Rs 200 per month, which are matched by the government.

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The Atal Pension Yojana, regulated by the Pension Fund Regulatory and Development Authority (PFRDA), may also be brought under this new framework. Further, the government is exploring the possibility of utilising the cess collected under the Building and Other Construction Workers (BoCW) Act to finance pensions for construction sector workers, ET reported.

The central government may encourage states to merge their existing pension schemes into this unified initiative. This would help ensure a fair allocation of government funds, increase pension benefits, and prevent duplication of beneficiaries.

What is the need for such a scheme?

By 2036, India’s elderly population, those aged 60 and above, is projected to reach 227 million, making up 15% of the total population. By 2050, this figure is expected to rise to 347 million, or 20% of the country’s population.

Several developed nations, including the US, Canada, Russia, China, and most European countries, have well-established social security systems that provide pensions, healthcare, and unemployment benefits. Countries such as Denmark, Sweden, Norway, the Netherlands, and New Zealand have universal pension schemes to ensure financial stability for their ageing population.

India’s current social security framework primarily depends on the provident fund system, along with targeted old-age pension schemes and health insurance for specific groups, particularly those living below the poverty line.

The proposed Universal Pension Scheme seeks to broaden coverage and establish a more inclusive and sustainable pension system for the country’s workforce.

UPS vs NPS: What’s the difference? Will NPS be replaced?

The New Pension System (NPS) is a voluntary retirement savings scheme available to government and private sector employees, as well as the general public, between the ages of 18 and 70. It allows individuals to receive both a lump sum and a pension upon retirement.

Corporates can also enrol in the scheme and offer its benefits to their employees.

The proposed scheme will not replace or merge with the NPS, which will continue to operate as a voluntary pension plan, sources told NDTV.

Recently, the central government introduced the **Unified Pension Scheme (UPS)** as a part of the NPS. This means it will be an additional option under the NPS specifically for government employees.

Initially launched for government employees, the NPS was later expanded to include workers from the private sector.

Similar to the Employees’ Provident Fund (EPF) and Public Provident Fund (PPF), the NPS follows the Exempt-Exempt-Exempt (EEE) model. This means that the entire corpus remains tax-free at maturity, and pension withdrawals are also exempt from income tax.

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What are some of the other pension schemes available in India?

The Indian government currently operates multiple pension schemes aimed at providing financial stability for individuals after retirement. These schemes cater to various sections of society.

Here is a look at some of the schemes:

1. Atal Pension Yojana (APY)

This scheme is designed for individuals working in the unorganised sector. Under APY, subscribers receive a guaranteed pension of Rs 1,000, 2,000, 3,000, 4,000, or 5,000 per month after turning 60, based on their contributions.

2. Employees’ Pension Scheme (EPS-95)

Targeted at employees in the organised sector, this scheme, managed by the EPFO, ensures post-retirement financial security. Employers contribute 8.33% of an employee’s salary to the pension fund, which is later disbursed as a pension.

3. Pradhan Mantri Kisan Mandhan Yojana (PM-KMY)

Designed specifically for small and marginal farmers, this scheme requires regular contributions ranging from Rs 55 to Rs 200. Upon reaching 60 years of age, beneficiaries receive a monthly pension of Rs 3,000.

4. Swavalamban Yojana (now known as NPS-Lite)

This is a simplified and cost-effective pension scheme for low-income individuals. A scaled-down version of the NPS, it is tailored for small investors.

With inputs from agencies