The Unified Pension Scheme (UPS), announced on August 24, 2024, will be effective from April 1, 2025. It guarantees a pension of 50% of the average basic salary over the last 12 months for employees with at least 25 years of service. A minimum pension of ₹10,000 per month is assured for those with a minimum of 10 years of service. Family pensions will be 60% of the pension amount in case of the employee’s death. This article will explore the details of the UPS, its features, and how it differs from the NPS.
Overview of the Unified Pension Scheme (UPS)
The UPS was introduced to address the concerns of government employees regarding the NPS. Many employees felt that the NPS did not provide a guaranteed pension amount, leaving their financial security uncertain. The UPS promises a defined benefit pension, which means retirees will receive a fixed amount based on their average salary.
Key Features of the UPS
- Assured Pension: Under the UPS, employees will receive 50% of their average basic pay from the last 12 months of service, provided they have completed a minimum of 25 years of service. For those with less than 25 years, the pension will be proportionate to their service period, with a minimum of 10 years required.
- Minimum Pension: The scheme guarantees a minimum pension of ₹10,000 per month for employees who have served at least 10 years.
- Family Pension: In the event of the employee’s death, their family will receive 60% of the pension amount. This ensures financial support for the family after the employee’s demise.
- Inflation Indexation: The UPS includes provisions for dearness relief, which will be adjusted based on the All India Consumer Price Index for Industrial Workers. This feature helps maintain the purchasing power of pensions over time.
- Lump Sum Payment: Retirees will also receive a lump sum payment at the time of superannuation. This payment will be calculated as one-tenth of their monthly emoluments for every six months of completed service.
- Government Contributions: The government will contribute 18.5% of the employee’s salary, while the employee will contribute 10%. This is an increase from the previous NPS, where government contributions were only 14%.
Investment Options Under the UPS
The UPS will offer employees a choice of investment options for their pension corpus. The Pension Fund Regulatory and Development Authority (PFRDA) will manage these funds. Employees can choose between different modes of investment, including:
- Default Mode: This option allocates 85% of funds to fixed income instruments and 15% to equity and related instruments.
- Government Securities: Employees who prefer a fixed return with minimal risk can invest 100% in government securities.
- Life Cycle Funds: There are two life cycle-based options—Conservative and Moderate. The Conservative fund allows a maximum of 25% exposure to equity, while the Moderate fund allows up to 50%.
Transition from NPS to UPS
Employees currently under the NPS will have the option to switch to the UPS. This one-time switch allows them to benefit from the assured pension features of the UPS. The government has indicated that the new scheme will likely be more beneficial for most employees compared to the NPS.
Comparison: UPS vs. NPS
Understanding the differences between the UPS and the NPS is crucial for government employees. Here are the main distinctions:
| Feature | Unified Pension Scheme (UPS) | National Pension System (NPS) |
|---|---|---|
| Pension Type | Assured pension | Market-linked pension |
| Minimum Pension | ₹10,000/month | No guaranteed minimum |
| Family Pension | 60% of last drawn pension | Varies, generally lower |
| Government Contribution | 18.5% | 14% |
| Employee Contribution | 10% | 10% |
| Inflation Protection | Yes, through dearness relief | Limited |
| Lump Sum Payment | Yes | No |
Also Read:
Unified Pension Scheme vs Old Pension Scheme
Is NPS Better Than OPS? Understanding the Differences
Unified Pension Scheme Calculator
Drawbacks of Unified Pension Scheme (UPS)
FAQs about the Unified Pension Scheme
Who is eligible for the UPS?
All central government employees who joined after January 1, 2004, and those who will join in the future are eligible for the UPS. Current NPS subscribers can also switch to the UPS.
When will the UPS be implemented?
The UPS will come into effect on April 1, 2025.
What happens if I switch from NPS to UPS?
Employees who switch from NPS to UPS will have their pension adjusted based on the benefits of the UPS. It is expected that most employees will find the UPS more advantageous.
How is the pension calculated under UPS?
The pension is calculated as 50% of the average basic pay drawn over the last 12 months of service, with adjustments based on the length of service.
Will there be any dearness relief under the UPS?
Yes, the UPS includes provisions for dearness relief, which will be adjusted based on the All India Consumer Price Index for Industrial Workers.
Can I choose my investment options under the UPS?
Yes, employees can choose from various investment options, including default modes, government securities, and life cycle funds.
What is the minimum period of service required to qualify for a pension?
Employees must complete at least 10 years of service to qualify for the minimum pension of ₹10,000 per month.
Conclusion
The introduction of the Unified Pension Scheme marks a significant change in the retirement planning for government employees in India. By providing assured pensions, minimum pension guarantees, and family pension benefits, the UPS aims to enhance financial security for retirees. As the scheme rolls out on April 1, 2025, it is expected to offer a more stable and predictable retirement income compared to the previous NPS. This transition reflects the government’s commitment to the welfare of its employees and addresses long-standing concerns about pension security.
