Latest update on Old Pension Scheme (OPS): Millions of central and state government employees, except for those working in the Indian armed forces, have been demanding that the OPS be brought back. The National Pension System (NPS) was introduced for central government employees in January 2004, replacing the decades-old guaranteed non-contributory pension scheme OPS.
Twenty-one years later, on April 1, 2025, the Centre launched a new scheme called Unified Pension Scheme (UPS) amid central government employees’ demand for the restoration of the old pension plan. The UPS has some mixed features taken from the NPS and the OPS. It is a contributory scheme like NPS, but, at the same time, gives a guarantee of a pension just like the OPS, provided the employee spends a certain number of years.
8th Pay Commission: OPS featured in the charter of demands by employee unions
After announcing the 8th Pay Commission in January this year, the government invited suggestions from employee organisations on various issues affecting the employees and pensioners. The demand for restoration of the Old Pension Scheme was one of the key demands from employee representatives.
What has been the govt’s response so far?
The Centre has maintained that there is no such proposal under consideration. The government recently came out with Terms of Reference (ToR) – a blueprint to be used by the newly appointed pay panel to revise salary and pension for employees and pensioners.
The central government has once again indicated that the possibility of a return to the Old Pension Scheme is virtually over.
The recent Union Cabinet meeting, chaired by Prime Minister Narendra Modi, approved the terms of the 8th Central Pay Commission.
And a key point in these terms is the “unfunded cost of non-contributory pension schemes.”
This clearly indicates that the government continues to emphasise financial discipline and long-term sustainability – and does not intend to return to the old, non-contributory system like the OPS.
Hidden hint in the terms of the 8th Pay Commission
According to the terms approved by the Cabinet, the new Pay Commission will submit its recommendations within the next 18 months.
In formulating these recommendations, the Commission will have to take into account factors such as the country’s economic situation, fiscal prudence, development expenditure, and the availability of funds for welfare schemes.
Most importantly, the terms clearly state that the Commission will have to consider the “unfunded cost of non-contributory pension schemes,” i.e., the cost of schemes in which the government pays the entire pension and employees make no contribution.
This model was applied to the Old Pension Scheme—and this is why the government has consistently described it as “financially unsustainable.”
Background of the 3 pension schemes — OPS, NPS, and UPS
The pension system for government employees in India can be viewed in three phases:
Old Pension Scheme (OPS):
This system applied to employees appointed before January 1, 2004.
Under this system, the government paid the entire pension upon retirement without any contribution from the employee—that is, the non-contributory system.
But over time, this system began to weigh heavily on the government treasury.
New Pension Scheme (NPS):
In January 2004, the central government implemented the New Pension Scheme (NPS).
In this scheme, both employees and the government contribute a portion of their salary.
This amount is invested in a market-linked fund, and the pension upon retirement is determined based on the return on that investment.
This means that pensions are no longer guaranteed, but this model is sustainable for the government.
Unified Pension Scheme (UPS):
Recently, the central government announced a new system called UPS, which will retain the NPS investment structure, but provide employees with a minimum guaranteed return and fixed pension benefits.
UPS is considered a better and more balanced version of NPS—providing security to employees and avoiding excessive burden on the government.
Government’s stance on the return of OPS already clear
Surprisingly, the Centre has repeatedly said that it will not restore the Old Pension Scheme. Several state governments such as Rajasthan, Chhattisgarh, Punjab and Jharkhand (non-NDA ruled states) revert to the OPS, despite the Centre making it clear that it has no ntention to implement OPS.
Earlier on many occasions, the Finance Ministry and the Department of Personnel and Training (DoPT) repeatedly stated that the OPS would not be brought back and the NPS and UPS would remain applicable to central employees.
The mention of “non-contributory pension” in the 8th Pay Commission terms and conditions is a clear indication that the government does not want to return to this direction.
Instead, the central government’s focus is on making the NPS more transparent and beneficial, and the UPS is a step in that direction.
OPS: Will increase pressure on the economy
Financial experts say that if OPS is reinstated, the pension burden on the government treasury will increase rapidly in the coming years.
Pension expenditure has already reached 20-25% of many state budgets.
Therefore, returning to the OPS is not fiscally viable for the central government.
Summing up…
The inclusion of the clause regarding “unfunded cost of non-contributory pension schemes” in the terms of the 8th Pay Commission is not just a formality, but a policy message. The central government is no longer considering a return to the old pension scheme, but instead relies on balanced and responsible systems like the NPS and UPS.
The government’s stance is now clear —
“The future is not the path to the old pension scheme, but a sustainable and transparent pension system.”
