The Indian government has recently introduced the Unified Pension Scheme (UPS) as an alternative to the existing Old Pension Scheme (OPS) for central government employees. This article aims to provide a detailed comparison between the two schemes, highlighting their key features, benefits, and drawbacks in a tabular format.
Unified Pension Scheme vs Old Pension Scheme – Differences in Tabular Formet
| Parameter | Unified Pension Scheme (UPS) | Old Pension Scheme (OPS) |
|---|---|---|
| Eligibility | All central government employees joining service on or after April 1, 2025 | Only for government employees who joined service before January 1, 2004 |
| Pension Calculation | 50% of the average basic pay during the last 12 months before retirement, provided the employee has completed a minimum of 25 years of service. For those with fewer years, the pension is proportional. | 50% of the last drawn basic pay, irrespective of the length of service |
| Family Pension | 60% of the employee’s pension in case of death | 60% of the employee’s pension in case of death |
| Minimum Assured Pension | Rs. 10,000 per month for employees with at least 10 years of service | No minimum assured pension |
| Inflation Indexation | Pensions indexed to inflation based on the All India Consumer Price Index for Industrial Workers (AICPI-W) | Pensions adjusted based on pay commissions, which may not always keep pace with inflation |
| Lump-sum Payment | One-tenth of the monthly emoluments (pay plus dearness allowance) for every six months of completed service, payable at the time of superannuation | No such lump-sum payment |
| Employee Contribution | No individual contribution required | No individual contribution required |
| Government Contribution | 100% of the pension liability | 100% of the pension liability |
| Portability | Not portable across different government organizations | Not portable across different government organizations |
| Tax Implications | Pension and lump-sum payment are tax-exempt | Pension is tax-exempt, but no tax benefits on contributions |
Also Read: Unified Pension Scheme Calculator
Advantages of the Unified Pension Scheme (UPS)
- Defined Benefit: The UPS provides a guaranteed pension based on the employee’s last drawn salary and length of service, ensuring a predictable and assured income after retirement.
- Inflation Protection: Pensions under the UPS are indexed to inflation, ensuring that the purchasing power of retirees is maintained over time.
- Minimum Assured Pension: The scheme guarantees a minimum pension of Rs. 10,000 per month for employees with at least 10 years of service, providing a safety net for low-income retirees.
- Lump-sum Payment: The one-time lump-sum payment at the time of superannuation can help retirees meet immediate financial needs or invest for future growth.
- No Individual Contribution: Unlike the National Pension Scheme (NPS), the UPS does not require any individual contribution from employees, making it more attractive for those who prefer a fixed pension plan.
Advantages of the Old Pension Scheme (OPS)
- Defined Benefit: Similar to the UPS, the OPS provides a fixed pension based on the employee’s last drawn salary, offering a predictable income stream after retirement.
- No Individual Contribution: Employees under the OPS do not need to contribute any portion of their salary towards the pension fund, as the entire liability is borne by the government.
- Tax-exempt Pension: The pension received under the OPS is tax-exempt, providing retirees with a higher disposable income.
Disadvantages of the Unified Pension Scheme (UPS)
- Financial Burden on the Government: The government bears the entire financial liability for the UPS, which can put a strain on government finances and limit funds available for other development initiatives.
- Reduced Investment Opportunities: With a significant portion of government resources allocated towards UPS pensions, there might be fewer funds available for crucial investments in infrastructure and social programs.
- Portability Limitations: The UPS, like the OPS, is not portable across different government organizations, limiting the flexibility for employees who wish to move between departments or states.
Disadvantages of the Old Pension Scheme (OPS)
- Financial Sustainability: The OPS has been criticized for its long-term financial sustainability, as the government’s pension liability continues to grow with an increasing number of retirees and rising salaries.
- Limited Growth Potential: While pension amounts are adjusted based on pay commissions, they might not always keep pace with inflation, potentially reducing the purchasing power of retirees over time.
- Reduced Incentives for Efficient Service: The fixed pension structure of the OPS might reduce the incentive for employees to perform efficiently, as their pension is not directly linked to their performance or contributions.
Frequently Asked Questions (FAQs) on ops vs unified pension scheme
Can employees currently under the National Pension Scheme (NPS) switch to the Unified Pension Scheme (UPS)?
No, the UPS is only applicable to central government employees joining service on or after April 1, 2025. Employees currently under the NPS will not have the option to switch to the UPS.
Is the Unified Pension Scheme (UPS) applicable to all government employees, including state governments?
No, the UPS is currently applicable only to central government employees. State governments have the option to implement similar schemes for their employees, but it is not mandatory.
How does the Unified Pension Scheme (UPS) differ from the Old Pension Scheme (OPS) in terms of family pension?
Both the UPS and OPS provide a family pension of 60% of the employee’s pension in case of death. However, the UPS also includes a minimum assured family pension of Rs. 6,000 per month, which is not available under the OPS.
Will the Unified Pension Scheme (UPS) be applicable to employees of autonomous bodies and public sector undertakings?
No, the UPS is currently limited to central government employees only. Employees of autonomous bodies and public sector undertakings will continue to be covered under the existing pension schemes or the National Pension Scheme (NPS).
Can employees under the Unified Pension Scheme (UPS) withdraw their accumulated pension corpus before retirement?
No, the UPS does not allow for partial withdrawals or premature withdrawal of the pension corpus. Employees can only access their pension benefits upon retirement or in case of permanent disability.
Conclusion on old pension scheme vs unified pension scheme
The introduction of the Unified Pension Scheme (UPS) marks a significant shift in the pension landscape for central government employees in India. While the UPS offers a more predictable and inflation-indexed pension, it also comes with its own set of challenges, particularly in terms of the financial burden on the government. Employees and policymakers will need to carefully evaluate the pros and cons of both the UPS and OPS to ensure a sustainable and equitable pension system for government employees in the long run.
