The Central Government introduced the Unified Pension Scheme (UPS) on August 24, 2024. The UPS scheme will be implemented from 1st April, 2025 and is expected to benefit 23 lakh Central Government Employees. This blog will discuss more about the newly introduced UPS scheme, its details and benefits.
Unified Pension Scheme Details
| Scheme Name | Unified Pension Scheme |
| Announced On | 24 August 2024 |
| Implementation From | 1 April 2025 |
| Beneficiaries | Central government employees |
| Employee Contribution | 10% of basic salary+dearness allowance |
| Employer Contribution | 18.5% of basic salary+dearness allowance |
| Benefits | A pension of 50% of the average basic over the last 12 months before retirement for employees having at least 25 years of service. Rs.10,000 per month upon superannuation after a minimum of 10 years of service. |
Unified Pension Scheme: Modi Govt launches new pension scheme to benefit its employees
On August 24, the Union Cabinet, chaired by the Prime Minister Shri Narendra Modi, approved the Unified Pension Scheme (UPS). Some of the salient features of the the scheme are:
- Assured pension
- Assured family pension
- Assured minimum pensions
- Inflation indexation
- Lump sum payment at superannuation in addition to gratuity.
What is Unified Pension Scheme?
The Unified Pension Scheme (UPS) is a new pension scheme introduced by the central government for its employees, which will be effective from April 2025. This scheme will be a significant switch from from the existing National Pension Scheme (NPS) and offers a fixed pension amount to employees after a minimum of 25 years of service. UPS ensures retirees receive a guaranteed and predetermined sum regularly after retirement.
The state government can also adopt and implement the UPS scheme for state government employees. Maharashtra is the first state to implement UPS. The Maharashtra Cabinet decided to implement the UPS scheme for the state government employees on 25 August 2024.
UPS Scheme Eligibility
The eligibility criteria for the UPS scheme are as follows:
- Government employees who have completed at least 10 years of service are eligible for a fixed pension amount.
- Government employees who have completed at least 25 years of service are eligible to receive a percentage of their average basic pay as a pension.
- Government employees who are covered under the National Pension Scheme (NPS) and those opting for Voluntary Retirement Scheme (VRS) under NPS.
- Employees who join the Central Government service on or after 1st April 2025 will be automatically be enrolled in the UPS scheme.
Benefits of Unified Pension Scheme (UPS)
Below are the benefits of the UPS Scheme:
- Assured Pension: Retired employees will receive a pension of 50% of their average basic pay over the previous 12 months before retirement. This benefit is provided to employees with at least 25 years of service. Proportionate pension benefits are offered to employees with shorter service periods.
- Government Service: The government will contribute 18.5% of the employee’s basic salary to the pension fund. The employees will contribute 10% of their basic salary to the pension fund.
- Assured Family Support: In case of the employee’s demise, their family members will be entitled to a family pension of 60% of the employee’s pension immediately before their death.
- Assured Minimum Pension: An employee with at least 10 years of service will receive Rs. 10,000 per month upon superannuation.
- Inflation indexation: Inflation indexation will be provided on assured pension, assured minimum pension and assured family pension. The Dearness Relief (DR) will be based on the All India Consumer Price Index for Industrial Workers (AICPI-IW) similar to service employees.
- Lump sum Payment: Retirees will receive a lump sum payment along with their gratuity at the time of superannuation. This payment will be equal to one-tenth of the monthly emoluments (pay + DA) as on the superannuation date for every six months of completed service. It will not reduce the amount of assured pension.
UPS Scheme Returns
The UPS scheme provides an assured pension amount to government employees upon their retirement. Employers will contribute 18.5% of the basic salary + dearness allowance, while employees will contribute 10% of the basic salary + dearness allowance every month.
For employees who have retired after a minimum service of 25 years, 50% of their average basic pay drawn in the previous 12 months prior to retirement will be provided as a pension. For employees who have retired after a minimum service of 10 years, Rs. 10,000 per month is provided as a pension after retirement.
How is the Pension Calculated under the UPS Scheme?
The Unified Pension Scheme offers a straightforward method for calculating the pension amount.
Pension Calculation Formulae:
- Base Pension: 50% of the average basic pay drawn in the last 12 months before retirement.
- Dearness Allowance: The base pension will be adjusted for inflation through regular updates in the dearness allowance.
What are Pension Plans?
Pension plans in India are investment products designed to provide a regular income after retirement. They offer a secure way to save for your post-retirement life. There are various types of pension plans available, including government-sponsored schemes like the Unified Pension Scheme (UPS), National Pension System (NPS) and private insurance-based plans.
Is there a minimum pension under the Unified Pension Scheme?
The Unified Pension Scheme (UPS) guarantees a minimum pension of Rs. 10,000 per month to employees who complete at least 10 years of qualifying service. This ensures a basic level of financial support for employees with shorter service periods.
What is National Pension Scheme (NPS)?
The National Pension Scheme (NPS) is a pension system open to all citizens of India. The NPS invests the contributions of its subscribers into various market-linked instruments such as equities and debts and the final pension amount depends on the performance of these investments.
An Indian citizen in the age group of 18-70 can open an NPS account. NPS administered and regulated by the Pension Fund Regulatory Authority of India (PFRDA). The superannuation age in NPS is 60, however, individuals can continue until the age of 75.
What is Old Pension Scheme (OPS)?
The Old Pension Scheme (OPS) is an approved scheme by the government. Government employees receive a monthly pension under the OPS. It provides a guaranteed pension for the government employees who have completed at least 10 years of service based on their last drawn basic salary and the years of service.
Under the OPS, the government pays the entire pension amount to the government employees after retirement. Thus, no amount is deducted from employee’s salaries when they are in service.
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Difference between UPS, NPS and OPS
| Features | UPS | NPS | OPS |
| Pension Amount | 50% of average basic pay over the last 12 months before retirement. For service between 10-25 years, proportional. | market-linked , depends on contributions and market performance. | 50% of last drawn salary increases with dearness allowance hikes. |
| Family Pension | 60% of the employee’s pension upon their death. | Depends on accumulated corpus and annuity plans at retirement. | Continued pension benefits to the family after the retiree’s death. |
| Employee Contribution | 10% of basic salary | 10% of basic salary | None, government bears the entire cost |
| Government Contribution | 18.5% of basic salary | 14% of basic salary | Entire cost is borne by the govt. |
| Inflation Indexation | Yes, based on All India Consumer Price Index for Industrial Workers. | Not applicable, pension is market-linked | Yes, pension amount increases with Dearness Allowance hikes. |
Pros and Cons of Unified Pension Scheme
Pros:
- UPS provides a degree of financial security with the defined benefits part that guarantees a minimum pension to the retirees. This helps in giving the retirees an assured type of income, therefore they will be not financially uncertain.
- The flexibility and portability features of UPS, all employees have the independence to shift the pension accounts to a new job without being cut off from the accumulated benefits.
- The investment of contributions under the defined contribution part of UPS into various financial instruments could ease the possibility of better returns than the fixed benefits under OPS.
Cons:
- UPS needs contributions from employees, which is not the case of OPS.
- UPS appears to lack provision for revision in the pension amount (increase) like provisions in OPS.
- There is confusion about migration from NPS to UPS or who will benefit from UPS. Those representing the employees are still in favour of OPS.
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Unified Pension Scheme V/s National Pension Scheme: Know which one better
| Feature | Unified Pension Scheme (UPS) | National Pension Scheme (NPS) |
| Eligibility | Central government employees who joined service after January 1, 2004 | Any Indian citizen between the ages of 18 and 70 |
| Pension Type | Defined benefit scheme (guaranteed pension) | Defined contribution scheme (pension based on contributions and market performance) |
| Pension Amount | 50% of the last drawn basic salary | Depends on the accumulated corpus and chosen annuity plan at retirement |
| Government Contribution | 18.5% of the basic salary | 14% of the basic salary (matched with employee’s contribution) |
| Family Pension | 60% of the employee’s pension | Depends on the accumulated corpus and chosen annuity plan at retirement |
| Risk | Lower risk due to guaranteed pension | Higher risk due to market-linked returns |
| Portability | Not applicable (restricted to central government employees) | Portable, allowing account transfer across employers and locations |
| Tax Benefits | Not yet specified | Tax benefits under Section 80CCD of the Income Tax Act |
Conclusion
The Unified Pension Scheme (UPS) offers a significant improvement over previous pension schemes, providing government employees with a guaranteed pension, family pension, and inflation-indexed benefits. While it may involve some trade-offs in terms of potential returns compared to market-linked options, UPS offers a secure and reliable retirement income.
Related Articles of OneNDF:
- OPS Vs NPS: Difference Between Old Pension Scheme And New Pension Scheme
- National Pension Scheme (NPS): Interest Rate & Eligibility
FAQs
Q.1 Who are eligible for the Unified Pension Scheme?
- Government employees who have completed at least 10 years of service are eligible for a fixed pension amount.
- Government employees who have completed at least 25 years of service are eligible to receive a percentage of their average basic pay as a pension.
- Government employees who are covered under the National Pension System (NPS) and those opting for Voluntary Retirement Scheme (VRS) under NPS.
Q.2 Can you switch from UPS to NPS later?
No, once you opt for UPS, you cannot switch back to NPS. Existing NPS/VRS employees and future employees will have the option to join UPS, but this choice is irreversible once made.
Q.3 What happens if the Pensioner dies?
If the pensioner passes away, their family will receive 60% of the pension the employee was receiving.
Q.4 What will happen to retirees under NPS?
The provisions of UPS will apply to former NPS retirees who have already retired. Any arrears from the past period will be paid with interest at PPF rates.
Q.5 Which one is better, UPS or NPS?
UPS provides a guaranteed pension amount, while the pension amount under NPS depends on the investments made in the market-linked security schemes. While UPS provides an assured pension, NPS may provide a higher pension amount due to higher returns in the market-linked investments. UPS may be better for employees who do not want to take any risk and get a guaranteed pension amount, while NPS may be better for employees who are willing to make market-based investments and get a higher return.
Q.6 What is the minimum pension amount in UPS?
The minimum pension amount in UPS is Rs.10,000 per month for employees retiring with at least 10 years of service.
Q.7 What is the difference between OPS and UPS pension?
The OPS provides a pension of 50% of the last drawn salary of employees, while UPS also provides a pension of 50% of the last drawn salary of employees but only for those employees who have completed 25 years of service.
Employees who retire with 10 to 25 years of service will get a proportionate amount as a pension under UPS. Employees do not have to contribute to the pension fund under OPS, but employees need to contribute 10% of their basic pay under UPS. Similarly, the government will also contribute 18.5% of the basic salary under UPS.
Q.8 Does UPS offer a lump sum pension?
Yes, retired employees will receive a lump sum payment along with their gratuity at the time of superannuation. This payment will be equal to one-tenth of the monthly emoluments (pay + DA) as on the superannuation date for every six months of completed service. However, it will not reduce the amount of assured pension.
Q.9 Which one is better for you- UPS, NPS or OPS?
Employees nearing retirement or who do not want to take market risk can consider UPS, as it provides a stable and predictable income after retirement. Thus, employees who want to receive an assured monthly pension post-retirement can consider shifting to UPS and separately investing in equities. While employees who have equity market knowledge and have 10-20 years left for retirement can consider continuing with NPS as they may receive higher annuity returns as a pension amount after retirement.
