Unified Pension Scheme: Finance Minister Nirmala Sitharaman on Tuesday said the Central government’s latest pension scheme, Unified Pension Scheme, is an attempt to improve the existing National Pension System (NPS).
The Unified Pension Scheme (UPS) was officially approved by the Union Cabinet on August 24. Under this scheme, government employees are assured 50% of their last drawn salary as a pension. Scheduled to be enforced starting April 1, 2025, the UPS is anticipated to provide advantages to approximately 230,000 central government employees initially. With the possibility of state governments also embracing the scheme, the outreach of beneficiaries could significantly increase to 900,000, fostering broader benefits across the public sector workforce.
On Tuesday, FM Sitharaman told Business Today TV that the UPS is not a compulsion for any state, states can compare the UPS with OPS and NPS and then decide.
FM Sitharaman said after the UPS implementation in 2025, the NPS may be nullified by default. She added that the scheme is only for central govt employees as of now.
Under the Unified Pension Scheme (UPS), the contribution structure is as follows: government employees will contribute 10% of their basic salary along with the Dearness Allowance (DA), whereas the government will contribute 18.5%.
Moreover, an additional pooled corpus, funded by an extra 8.5% from the government, is also established. As per the UPS regulations, participants are assured a pension amounting to 50% of their average basic salary from the preceding 12 months.
Top features of UPS
The UPS aims to combine the advantages of the Old Pension Scheme (OPS) and the New Pension Scheme (NPS) to create a comprehensive and equitable retirement plan. The innovative scheme is conceived as a hybrid model, providing a fixed benefit similar to OPS while also incorporating a contribution-based element akin to NPS.
Former Finance Secretary T V Somanathan highlighted the fiscal responsibility of the UPS, stating: “It is fiscally prudent in the sense that we will have to absorb it each year in the Union Budget within our budgeted fiscal deficit.” He added that the UPS is fully funded and contributory, ensuring no burden is passed on to future governments.
The new scheme provides employees with the option to either stay enrolled in the National Pension Scheme (NPS) or transition to the UPS. It’s important to note that the decision made by employees regarding their pension scheme choice is irreversible.
The National Pension Scheme (NPS) is currently in place for all government officials, with the exception of individuals in the armed forces who entered central government service on or after January 1, 2004.
Top features of UPS
Under UPS, if you work for 25 years or more, you will receive 50% of your average pay for the preceding 12 months as a pension, adjusted for inflation through dearness allowance.
Employee contributions will remain the same under the UPS. However, the government will increase its contribution from 14% to 18.5%.
At retirement under UPS, you will receive a lump sum payment at superannuation along with gratuity. This will be 1/10th of your monthly emoluments (pay + DA) on the date of superannuation for every six months of completed service. This payment will not reduce the assured pension amount.
Retirees under UPS will receive 50% of their average basic pay over the last 12 months before retirement for a minimum of 25 years of qualifying service.
For shorter service periods, pensions will be proportionate, with a minimum of 10 years of service. A pension of Rs 10,000 per month will be given after a minimum of 10 years of service.
Pensions under UPS will be indexed to inflation. Dearness Relief will be based on the All India Consumer Price Index for Industrial Workers (AICPI-IW), as with serving employees.
In case of a pensioner’s death, their family will receive 60% of the pension the employee was receiving.
Unlike OPS, where budget makers do not set aside funds like a company builds a pension reserve, UPS is based on actuarial calculations to assess the liabilities that will arise. An actuarial assessment will be conducted every three years.
Provisions of the UPS will apply to past NPS retirees who have already superannuated. Arrears for past periods will be paid with interest at PPF rates.
Provisions of the UPS will apply to past NPS retirees who have already superannuated. Arrears for past periods will be paid with interest at PPF rates.
One should note that you cannot switch back to NPS after opting for OPS. According to the government, existing NPS/VRS employees and future employees will have the option of joining UPS. However, once exercised, the choice will be final.