(Bloomberg) -- India will implement a new pension system that guarantees federal government staff a percentage of their base salary as payout following retirement.
The plan kicks in next April and will give employees with at least 25 years of service a pension equivalent to 50% of their compensation before retirement, the prime minister’s cabinet said in a statement Saturday. The payment will be proportionate for shorter employment periods. The plan replaces one in which payouts are linked to market returns, a system adopted in the mid-2000s to reduce fiscal strain.
The revamp comes after several state governments shifted to a similar system and labor unions and opposition parties clamored for a change. With provincial elections approaching in several key states including Maharashtra, Prime Minister Narendra Modi’s ruling Bharatiya Janata Party is seeking to improve its performance from the general elections this year, when it lost the majority for the first time since 2014.
“The Unified Pension Scheme ensures dignity and financial security for government employees, aligning with our commitment to their well-being and a secure future,” Modi said in a post on X.
Additional Costs
The program is estimated to cost the government an additional 62.5 billion rupees ($745 million) during the first year. The new system will be implemented retrospectively for employees who retired after 2004.
Icra Ltd.’s Chief Economist Aditi Nayar sees the guaranteed pensions adding to the committed expenditure of the central government going forward, “while reducing the uncertainty for employees.”
“This will have to be built into the fiscal consolidation roadmap going ahead,” Nayar said in an emailed statement.
Other key measures adopted by the cabinet on Saturday include:
- A policy for boosting biomanufacturing, aimed to help the country to achieve its net zero carbon target and accelerate technology development and commercialization, according to a statement
- 106 billion rupees in spending to boost research and innovation capacity, with the new “Vigyan Dhara” plan unifying three previous schemes
(Updates with comment from economist in sixth paragraph.)
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