The recent introduction of the Unified Pension Scheme (UPS) by the Centre aims to balance the conflicting demands of fiscal responsibility and guaranteed pensions for public employees. The UPS attempts to address the limitations of both the Old Pension Scheme (OPS) and the National Pension System (NPS) by offering a hybrid solution that merges elements of both. However, while the scheme may provide shortterm political relief, it raises significant concerns about long-term fiscal sustainability. The OPS, which was in place before 2004, provided government employees with generous, unfunded pensions, placing the financial burden on future taxpayers. This scheme led to a massive pension liability for the government, which has only grown over time.

In response to this unsustainable burden, the NPS was introduced, shifting to a contributory system where both employees and the government contributed to a pension fund managed by the Pension Fund Regulatory and Development Authority (PFRDA). This move was seen as a step towards fiscal prudence, as it limited the future financial obligations of the government. However, the NPS has not been without its critics. Employees have expressed concerns about the uncertainty of marketlinked returns and the lack of a guaranteed pension. This has led to demands for a return to the OPS, particularly in states where political pressure has been intense. Some states have even reverted to the OPS, further complicating the national pension landscape.

The UPS seeks to reconcile these competing dem – ands by offering a guaranteed pension, family pension, inflation indexing, and lump-sum benefits, while still maintaining the contributory nature of the NPS. This compromise appears to offer the best of both worlds: the fiscal responsibility of the NPS with the security of the OPS. However, the reality may not be so straightforward. The guarantee of pension benefits, irrespective of the performance of the pension fund, places a significant financial obligation on future governments. While the scheme may be fiscally manageable in the short term, its long term viability is questionable. If market returns fail to meet expectations, the government will be forced to cover the shortfall, potentially leading to a situation where the pension system becomes unsustainable.

Moreover, many state governments continue to engage in fiscally irresponsible practices, borrowing heavily to fund welfare programmes and other expenditure. If this trend continues, these states may find themselves unable to meet their pension obligations, leading to a financial crisis. The Centre could also face similar challenges if it fails to maintain fiscal discipline. The UPS can only be successful if it is accompanied by a renewed commitment to fiscal prudence at both the state and central levels. Policymakers must resist the temptation to make short-term promises that could jeopardise long-term economic stability. While the UPS may provide immediate relief to employees, it is essential to ensure that it does not become another financial burden for future generations.