Unified Pension Scheme
Description
Unified
Pension Scheme
Description: Explore the Unified
Pension Scheme (UPS) launching in April 2025 for 23 lakh central government
employees. Learn about assured pensions, tax benefits, and how UPS balances the
Old Pension Scheme (OPS) and National Pension Scheme (NPS).
Introduction
The Unified Pension Scheme (UPS), recently approved by the Government of India, is set to take effect from April 1, 2025.
This scheme will impact 23 lakh
central government employees, providing a blend of benefits
from the Old Pension
Scheme (OPS) and the National Pension Scheme (NPS). The UPS aims to ensure a guaranteed pension
while maintaining a fully funded system.
Key Features
of the Unified Pension Scheme (UPS)
- Assured
Pension: The scheme guarantees a pension
equal to 50% of the
average basic pay drawn over the last 12 months
before retirement, with a minimum
qualifying service of 25 years.
- Assured
Family Pension: In case of the employee's
death, their family will receive 60% of the
employee's pension immediately before their demise.
- Assured
Minimum Pension: A minimum pension of ₹10,000 per month
is guaranteed upon retirement after a minimum of ten years of service.
- Inflation
Indexation: The assured pension,
family pension, and minimum
pension will be adjusted for inflation,
ensuring they keep pace with rising prices.
- Lump Sum
Payment at Superannuation: Employees will receive a lump sum payment equivalent
to 1/10th of their monthly emoluments (including pay and DA) for every six months of completed
service, in addition to gratuity, without reducing the assured pension amount.
Comparison:
How UPS Differs from OPS and NPS?
- Pension
Calculation: Unlike OPS, where the pension
was fixed at 50% of the last drawn basic salary + DA, UPS calculates the
pension based on the average basic
salary + DA drawn in the last 12 months
before retirement.
- Employee
Contribution: Similar to NPS, UPS requires
employees to contribute 10% of their
basic pay and DA. The government's contribution
will rise to 18.5%, compared to the current 14% in NPS. OPS did not require
any employee contribution.
- Tax Benefits: Contributions by both the employee and the government
under UPS are likely to be eligible for tax
benefits, similar to NPS. OPS did not
offer any tax benefits due to the absence of employee contributions.
- Minimum
Pension: UPS ensures a higher minimum pension of ₹10,000 per month after ten years of service,
compared to ₹9,000 under OPS.
- Lump Sum
Payment: UPS offers a lump sum payment
at retirement calculated as 1/10th of
monthly emoluments for every six months of service
completed, without affecting the assured pension.
Main Benefits
of the Unified Pension Scheme (UPS)
- Assured
Pension: Employees with at least 25
years of service will receive a guaranteed pension equal to 50% of their average basic pay from the last 12 months before retirement. For those
with 10-25 years of service, the pension is calculated proportionately.
- Assured
Family Pension: In the event of an employee's
death, the family
pension will be 60% of the pension the
employee was receiving.
- Assured
Minimum Pension: Employees with a minimum of 10
years of service are entitled to a minimum
pension of ₹10,000 per month upon retirement, ensuring a
basic level of financial security.
- Inflation
Indexation: Both the assured pension and
family pension will be adjusted for
inflation, keeping them in line with
rising prices.
- Lump Sum
Payment: Employees will receive a lump sum payment
at retirement, in addition to gratuity, equal to 1/10th of their monthly
emoluments for every six months of service completed.
- Contributory
Scheme: Employees contribute 10% of their basic pay and DA, while the government's contribution increases to 18.5%,
higher than the 14% in NPS.
- Tax Benefits: Contributions to UPS by both employees and the
government may be eligible for
tax benefits, providing an added financial
advantage.
Sustainability
and Funding of UPS
Unlike the unfunded OPS, the Unified Pension Scheme (UPS) and NPS are fully funded pension schemes. The government ensures
sustainability through mandatory
contributions from both employees and the
government, along with prudent investment management. Regular actuarial reviews
will be conducted every three years to monitor the scheme's sustainability and
adjust features as needed. The government's increased contribution of 18.5% under UPS is designed to ensure
the scheme's long-term viability and offer the promised assured pension
benefits.
Conclusion
The Unified Pension Scheme (UPS) offers a balanced approach by combining the best
features of OPS and NPS, providing a guaranteed
pension while ensuring financial
sustainability. This scheme is set to offer significant financial security to
central government employees through assured
pensions, inflation protection, and tax benefits.
