The Union Budget 2025-26 has provided Rs 7,000 crore for the implementation of the Unified Pension Scheme from April 1, says Manoj Govil, Secretary, Department of Expenditure in the Ministry of Finance. In an interview with BT, Govil expressed hope that once the scheme stabilises, its corpus will be sufficient for pension payouts. He also said the process of setting up the Pay Commission has been initiated. Edited excerpts:
The government recently announced the setting up of the Eighth Pay Commission. Could you explain the next steps in its formation?
The decision has been taken to start the constitution of the Eighth Pay Commission and we have written to the Ministries of Defence and Home Affairs and the Department of Personnel and Training for their views and suggestions on the terms of reference. We have also written to the different state governments even though the pay commission recommendations are not applicable to the state governments, it’s only applicable and only meant for the central government. But many state governments also adopt these recommendations. Once we receive their views, then we will have the terms of reference and the government will need to decide upon the composition of the commission. Then the formal notification for the terms of reference and the Constitution of the commission will be issued after which the Commission will start working. In the past, the commissions have taken more than 12 months to give the recommendations, so depending on what the terms of reference are, and when the commission gives its recommendation, then the government will process those recommendations and a decision will be taken on them.
So the financial impact will not be felt in FY26?
No, we don’t expect any implication of the pay commission recommendation in the financial year 2025-26 but there would be an implication for the year after that.
When is the report of the 16th Finance Commission expected?
I think they are expected to submit it by October. Those recommendations will be applicable from April 1, 2026. Â It has nothing to do with the next financial year 2025-26.
What kind of an impact will the Unified Pension Scheme (UPS) have on government finances?
The UPS will be operationalised from the April 1, 2025. The committee chaired by the Ex Finance Secretary had gone into this issue in detail, and according to their calculations, the fiscal impact of the additional 4.5% that Government of India is supposed to give under that UPS is likely to be around Rs 6,250 crore. Apart from that, around Rs 800 crore is the estimated liability for arrears of the people who have already retired but may choose the UPS. So the total impact will be around Rs 7,000 crore and this amount has been provided for in the Budget. This will go into the pooled corpus and will be invested in the specified manner.
Do you expect most Central government employees to move to the UPS now?
The National Pension System (NPS) will continue with both the options and the Central government employees will have the choice of whether they want to stay in the NPS without UPS or NPS with UPS. Once they exercise the option, we will know how many people opt for the UPS. Â Certain elements of UPS are very attractive including the guaranteed payout, family pension, dearness relief, minimum pension of Rs 10,000 and the lumpsum amount. We hope that a significant number of employees will opt for UPS.
In the past, there were concerns that moving to a guaranteed pension could add to the liabilities of the government. Has the UPS taken care of that?
Based on assumptions that were made and the 4.5% contribution of the Government of India, the UPS should be able to bear all the liabilities on account of assured annuity and other benefits from the corpus itself. We also need to check the way the scheme is operating after three years and we see whether the assumptions are in the right direction, whether the formation of the corpus, the expected rate of return on investments is happening. But the hope is that once the UPS stabilises, its corpus should be sufficient to give these payouts, and the government may not need to pay out from its Consolidated Fund of India, so that burden will not be on the future generations.