Prime Minister Narendra Modi recently announced the Unified Pension Scheme (UPS) for government employees, emphasizing its pivotal role in ensuring workers’ financial security.
The UPS guarantees 50% of the average basic pay for the 12 months prior to retirement as a pension, along with additional benefits such as family pension, minimum pension, and inflation adjustments. This focus on financial security sets UPS apart from other schemes.
In contrast to the existing schemes, such as the Old Pension Scheme (OPS) and the New Pension Scheme (NPS), the UPS stands out for its focus on employee welfare and security.
Old Pension Scheme (OPS): Under OPS, retirees receive half their salary as pension, along with provisions for the General Provident Fund and gratuity of up to 20 lakhs. OPS relies on government funding, and in the event of a retired employee’s death, their family members receive the pension amount.
New Pension Scheme (NPS): Under the New Pension Scheme (NPS), employees receive 10% of their basic pay + DA as pension, and the scheme is tied to the stock market and subject to taxation.
Unified Pension Scheme (UPS): In contrast, the Unified Pension Scheme (UPS) places no pension burden on employees and guarantees fixed pension amounts. This means that the UPS offers tax benefits, along with provisions for family pension, dearness allowance, and lump sum payments upon retirement.
The UPS will be implemented on April 1, 2025, benefiting existing and future NPS participants and those who have retired since its inception. This move has been lauded for its commitment to government employees’ welfare and financial security.
UPS vs. OPS vs. NPS
| Feature | OPS | NPS | UPS |
|---|---|---|---|
| Nature | Non-contributory | Contributory | Contributory |
| Employee Contribution | None | 10% of basic salary | 10% of basic salary |
| Government Contribution | None | Matching contribution | 15% of basic salary |
| Quantum of Pension | 50% of the last drawn salary (normal) or annuity plan (enhanced) | Based on market returns in the last 12 months before retirement (with at least 25 years of service) | Depends on the All India Consumer Price Index adjustment; ₹10,000 per month (with at least 10 years of service) |
| Family Pension | 30% of the last drawn pension corpus and drawn through annuity plan | Depends on the performance of the market | Not applicable |
| Assured Minimum Pension | Not applicable | Not applicable | ₹10,000 per month (with at least 10 years of service) |
| Lump Sum Payment | Provided | Not applicable | May sum up amount in addition to gratuity |
| Retirement Gratuity | Provided | Not applicable | Provided |
| Service Gratuity | Provided | Not applicable | Provided |
| Death-cum-Retirement Gratuity | Provided (less than 10% of service years) | Not applicable | Not applicable |
| Restoration | Up to 40% can be restored after completion | Not applicable | Up to 40% can be restored after completion |
| Additional 20% gratuity after 80 years | Not applicable | Not applicable | 20% extra at 80 years (similar to NPS) |
| Portability benefits | Not applicable | Not applicable | Portable across jobs and sectors (invested in debt equity and across global markets) |
UPS Features
- Employee share: There is no employee contribution in UPS.
- Fixed Pension: After retirement, employees receive a fixed pension. The pension is 50% of the average basic pay for the 12 months preceding retirement. This benefit is available only to employees who have worked for at least 25 years.
- Minimum Pension: If an employee retires after working for at least ten years, they will receive an Assured Minimum Pension of Rs. 10,000.
- Family Pension: This scheme offers a family pension facility. After the employee’s death, the family receives 60% of the total as a family pension.
- Inflation Indexation Benefit: Dearness Relief (DR) is available on all three pensions as per inflation. It is based on the All India Consumer Price Index for industrial workers.
- Gratuity: The employee will receive the last six months’ salary + allowances as a gratuity. This will be one-tenth of the employee’s last basic pay.
- Share market investments: UPS’s government bears this amount.
- The benefit of PRC: PRC does not apply to UPS.
- Compassionate Appointment: There is a provision for compassionate appointments.
- Health Card: There needs to be more clarity regarding providing a health card at UPS.
NPS Highlights
- The Nationalension Scheme (NPS), also known as the Contributory Pension Scheme (CPS), started in 2004.
- It has applied to the private sector since 2009.
- It is administered by the Pension Fund Regulatory and Development Authority (PFRDA).
- In this, the employee gets a pension based on the investment made. There is a 10% employee share on Basic+DA.
- After withdrawing a maximum of 60% during retirement, the remaining money can be used to buy annuity plans and get monthly income.
- In which family pension is optional.
- No health card
- There is a compassionate appointment.
- No DR
- PRC benefits are not applicable
- Share market investments should be borne by the employee.
- NPS is divided into Tier 1 and Tier 2 accounts. Those opting for a Tier 1 account can withdraw a certain amount only at the time of retirement (barring exceptional circumstances). However, Tier 2 account holders are allowed to withdraw money before retirement.
- As per Section 80 CCD of the Income Tax Act, Rs. Investments up to Rs 1.5 lakh will get tax exemption benefits.
- Withdrawal of 60 percent of the NPS amount is tax-free.