Karnataka government awaits notification on guidelines to assess impact of proposed Unified Pension Scheme

The Karnataka government is awaiting the notification on guidelines to assess the benefits and impact of the proposed Unified Pension Scheme (UPS) that has been launched by the Centre to replace the National Pension Scheme (NPS) and to be implemented from April 1, 2025.

The Karnataka government is awaiting the notification on guidelines to assess the benefits and impact of the proposed Unified Pension Scheme (UPS) that has been launched by the Centre to replace the National Pension Scheme (NPS) and to be implemented from April 1, 2025.

While the Union Cabinet has approved the introduction of UPS, the final notification and guidelines are yet to be released. Additional Chief Secretary Anjum Parvez had been asked by the government to review the new scheme and provide recommendation.

“Unless the guidelines are finalised, there is no clarity on how the proposed pension scheme will be managed. The Centre has also clarified that it will not incentivise the States to incorporate the scheme and it would be purely voluntary on their part to decide to join UPS or not. There is no pressure on the States,” a senior Finance Department official said. “First, the State needs to decide on whether to opt or not and then employee option will also be there.”

According to a rough estimate, the State government is likely to incur an expenditure of about ₹1,000 crore to ₹1,500 crore annually under the UPS as the employer contribution goes up from 14% in NPS to 18.5% in UPS. Though there are about three lakh employees and a big number in autonomous institutions under the NPS in Karnataka, they have already rejected UPS and are seeking integration with the old (defined) pension scheme (OPS).

On asked if there would be a seamless transfer and integration between the NPS and UPS if it happens, sources said: “We need to know the fund management mechanism. Whether the fund will be managed by Pension Fund Regulatory and Development Authority (PFRDA) or whether the NPS trust will be asked to manage the fund or will something else be put in place. Modalities need to be worked out and It will take a lot of time to work out the integration.”

Currently, while States have exited NPS, the Centre and PFRDA have clarified that the NPS corpus will not be returned to the States since there is no provision for it. The States that have exited NPS and returned to OPS include Himachal Pradesh, Punjab, Rajasthan, Jharkhand, and Chhattisgarh.

The estimated share of Karnataka in the NPS corpus is about ₹30,000 crore since joining the scheme in April 1, 2006. “While 60% of the corpus can be withdrawn by the employee, 40% is spent on annuity. So, roughly 40% of the corpus would have been contributed by the employees and 14% employer’s contribution is deposited in the name of employees, besides 10% contribution from the employees. Governments cannot claim the corpus to be theirs. It is considered that the corpus is the property of the employees and not that of the government,” sources explained.