The Central Government has introduced the Unified Pension Scheme (UPS) on August 24, 2024, which will be effective from April 1, 2025. This scheme guarantees a fixed pension for government employees based on their contributions.
The government of India has recently introduced the Unified Pension Scheme (UPS) for central government employees. This new scheme is set to be available to current members of the New Pension Scheme (NPS), including retirees, and will take effect on April 1, 2025.
Under UPS, the government’s contribution will increase to 18.5% of the employee’s basic salary and dearness allowance (DA), up from the current 14% under NPS.
The Unified Pension Scheme (UPS) is a newly introduced framework whose main aim is to consolidate and streamline pension schemes in India. The UPS tries to address the challenges and limitations of existing pension systems, such as the Old Pension Scheme (OPS) and the National Pension System (NPS), by providing a unified approach to retirement planning.
Pension structure: Under the newly introduced UPS, employees are assured a guaranteed pension amounting up to 50% of their average basic salary, calculated over the last 12 months before retirement. This pension is applicable only to those with a minimum of 25 years of service, while employees with 10 to 25 years of service receive a proportionately reduced pension. In contrast, the NPS is a market-linked pension scheme where the pension mainly depends on the returns generated from contributions invested in various financial instruments, including equity and debt.
The UPS also includes a minimum assured pension of Rs 10,000 per month for employees who have at least 10 years of service, offering a safety net that the NPS lacks. Additionally, the UPS provides inflation protection through indexation based on the All India Consumer Price Index for Industrial Workers (AICPI-IW), ensuring that the pension amount keeps pace with rising living costs.
Under the new scheme, employees who have completed 25 years of service will be eligible for a pension amounting to 50 percent of their average basic pay during the past 12 months before retirement. Those with at least 10 years of service will receive a proportional pension, with a minimum guarantee of Rs 10,000.
Differences between the UPS and the current New Pension Scheme (NPS) reveal notable advantages for those opting for UPS. An employee starting at age 25 and retiring after 35 years of service could accumulate a pension corpus of Rs 4.26 crore under UPS, resulting in a monthly pension of Rs 2.13 lakh. By comparison, under NPS, the same employee would amass Rs 3.59 crore and receive a pension of Rs 1.79 lakh monthly. The substantial difference is attributed to the higher government contribution rate under UPS.
On Saturday, the Cabinet approved the Unified Pension Scheme (UPS) of 23 lakh for central government employees. The UPS guarantees that all central government employees receive 50 percent of their last drawn salary from the past 12 months as pension who have served for 25 years or more. Additionally they will also be eligible for post-retirement inflation-linked increments in their pension amount.
Central trade unions presented a mixed response to the Unified Pension Scheme, with common saying they are awaiting the notification for clarity on the new scheme’s details, including on the ratio of the all-at-once payment at retirement, future revisions, and tax benefits. However, even those who welcomed the scheme lamented the fact that the UPS, unlike the old pension scheme (OPS), requires the employee to contribute 10% of her salary to the scheme’s fund.