UPS: For financial security after retirement, the Government of India has now come up with a new pension scheme. The name of this pension scheme is Unified Pension Scheme (UPS). Earlier, the old pension scheme (OPS) was in operation, which the government discontinued and brought the new pension scheme (NPS). This was being opposed for a long time and people were demanding the old pension scheme. But the government did not bring the old pension scheme, but definitely launched a new Unified Pension Scheme (UPS).
Talking about the Old Pension Scheme (OPS), this scheme was already popular among government employees, as it provided assured pension based on the last salary. This scheme was replaced by the New Pension Scheme (NPS), which became mandatory for employees joining after 2004. There is no guarantee of pension in NPS, rather a fund is created by the contribution of the employee and the employer, which provides pension after retirement. Although there is a possibility of profit through investment in it, the pension amount is not fixed.
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Now, UPS has come forward. The government is claiming that all the complaints coming in NPS have been resolved in this. This scheme has a provision of assured pension like the Old Pension Scheme, and it will be implemented from 2025. The pension amount in UPS will be fixed, and it will also provide the benefit of assured pension to the family. Also, there is a provision of adjustment in pension according to inflation. UPS is being seen as a balanced solution. Let us know what changed in these three.
The Union Cabinet on Saturday, August 24, approved the Unified Pension Scheme (UPS), which will provide a fixed pension facility after retirement. UPS will be implemented from April 1, 2025. This step has been taken in response to the long-standing demand of central government employees to improve the New Pension Scheme (NPS).
Giving information about the decisions of the Union Cabinet, Information and Broadcasting Minister Ashwini Vaishnav said, “There has been a demand from government employees to reform the NPS… Prime Minister Narendra Modi had constituted a committee headed by TV Somanathan in April 2023 to consider this… After extensive consultations and discussions, including the JCM, the committee has recommended the Unified Pension Scheme. Today the Union Cabinet has approved this scheme.”
What is Unified Pension Scheme (UPS)?
Unified Pension Scheme (UPS) is the new pension scheme for government employees. Under this scheme, employees will be provided a fixed pension, which is different from the New Pension Scheme (NPS), in which the pension amount was not fixed.
Five main pillars of UPS
1. Assured Amount: Under UPS, the pension of the employees will be 50 percent of the average basic salary of the last 12 months before their retirement. The condition for this is that they have served for at least 25 years. If the service is less than 25 years and more than 10 years, then this amount will be given on the basis of pro-data. (Detailed information is awaited on how much it will be for how many years.) There will be a provision of pension for a minimum of 10 years of service.
2. Assured Family Pension: Family pension will also be given under UPS, which will be 60 percent of the basic salary of the employee. This pension will be given to the family of the employee immediately after his death. However, it is not clear yet whether if an employee dies in the first year, will his family also get pension on this basis.
3. Provision of minimum pension: Under UPS, if an employee retires after serving for at least 10 years, he will get a minimum pension of Rs 10,000 per month.
4. Inflation adjustment: The scheme also provides for inflation adjustment on pension, family pension and minimum pension.
5. Gratuity: Under UPS, a lump sum payment will be made at the time of retirement, which will be 1/10th of the employee’s last salary (basic pay + dearness allowance). This payment will be for every six months of service and it will not reduce the pension amount.
Who will benefit from UPS?
The government has said that central government employees will have the right to decide whether they remain in NPS or join UPS.
Cabinet Secretary T V Somanathan also said, “This scheme will be applicable to all those who have retired under NPS since 2004. Although UPS will be effective from April 1, 2025, all employees who retired under NPS from 2004 to March 31, 2025 will be eligible for all five benefits of UPS. They will get the benefit of this scheme after adjusting the previous pension payments.”
What is the National Pension System (NPS)?
NPS was launched in January 2004 as a government-sponsored retirement scheme for government employees. Later (in 2009) it was extended to other sectors as well. NPS is jointly operated by the government and the Pension Fund Regulatory and Development Authority (PFRDA) and is designed as a long-term, voluntary investment scheme for retirement.
NPS guarantees pension and also provides the possibility of profit from investment. After retirement, a subscriber can withdraw a part of his deposited funds, while the rest of the amount is given as monthly income, which provides regular income after retirement or a pension is guaranteed.
NPS is divided into two tiers: Tier 1 account and Tier 2 account. Under Tier 1 account, withdrawal can be made only after retirement, while Tier 2 account allows earlier withdrawal. By investing in NPS, one can get income tax exemption of up to Rs 1.5 lakh under section 80CCD. Withdrawal of 60 percent of NPS amount is tax-free.
Difference between NPS and Old Pension Scheme (OPS)
NPS replaced Old Pension Scheme (OPS). Old pension scheme was based on the last salary of the employee, hence it is also called as Defined Benefit Pension System (DBPS). NPS is called as Defined Contribution Pension System (DCPS) in which employer and employee contribute to build a pension at the time of retirement. One had benefit, the other had contribution.
Under OPS, employees could withdraw 50 per cent of their final salary as pension after retirement. Whereas under NPS, individuals can withdraw 60 per cent of their funds at the time of retirement, which is tax-free. The remaining 40 per cent is converted into an annuity product, which can currently provide a person with 35 per cent of their final salary as pension.
NPS is mandatory for all employees joining central government services, including central autonomous bodies, who joined after January 1, 2004. Many state governments have also adopted NPS, while some say the old pension scheme is better.
UPS: Who will get how much pension and when, read every detail of Unified Pension Scheme here
What is UPS?
This is a new pension scheme for government employees which has been brought as an alternative to NPS. Under UPS, there will be a provision for a fixed assured pension, which was not there in NPS. In this, a minimum pension of Rs 10,000 is fixed. Under this scheme, an employee who works for 25 years will be given 50 percent of the average of the basic salary received till 12 years before the end of his service as pension.
Pension for family
There will be a guaranteed pension for a family. Which is 60 percent of the pension received by the employee. In case of death of the employee, it will be given immediately.
Minimum Pension
There is a provision of assured minimum pension of Rs 10,000 per month in UPS after retirement after a minimum service of 10 years. Along with this, assured pension, assured family pension and assured minimum pension will be changed as per inflation.
Payment other than gratuity
In addition to gratuity, a lump sum payment will be made on retirement. This will be 10th of the amount made by combining monthly income and dearness allowance. It will be calculated every 6 months.
States can also be included.
State governments will also be given the option to choose this scheme. If state governments choose UPS, the number of beneficiaries will be around 90 lakh. According to the government, Rs 800 crore will be spent for arrears. In the first year, an additional burden of Rs 6,250 crore for pension will fall on the government treasury.
Who can join UPS?
Union Minister Vaishnaw said, “Central government employees will have the right to decide whether to remain in the National Pension Scheme (NPS) or join the Unified Pension Scheme (UPS).” During a media briefing on Saturday, Cabinet Secretary T V Somanathan said this will also apply to all those who have retired under NPS since 2004.
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