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The Unified Pension Scheme, UPS, introduced by the Central Government in August 2024, is a new pension system that offers a regular pension income to government employees' post-retirement and is based on their last draws salary and total years of service.
Up until 2004, government employees, both state and central, enjoyed post-retirement pension based on a ‘Defined Benefit System’ which was determined by their last drawn salary and years of service, giving them a stable retirement income. With the introduction of NPS in 2004, it became a ‘Defined Contribution System’, where the employees were required to contribute towards their pension fund and the post-retirement income became dependent on their pension fund performance and other market linked instruments. This has caused disgruntlement among government employees to some degree and there have been regular representations from various employee associations requesting to go back to the original pension scheme.
Learn more about NPS here!
In the wake of this, the current central government has introduced the Unified Pension Scheme (UPS) that combines the Defined Benefit System of the old pension scheme and the Defined Contribution System of the NPS. Keep reading to understand the benefits and eligibility of this new pension scheme.
Unified Pension System – What is it? How does it work?
UPS Announcement Date | 24th August 2024 | |
To be implemented from | 1st April 2025 | |
Primary Beneficiaries | Central Govt. Employees State Govt. also allowed to adopt the system, with Maharashtra being the first state to adopt it the very next day on 25th August. | |
Estimated No. of Beneficiaries | 23 Lakh Central Govt. Employees Will become 90 Lakhs if all States adopt this system. | |
Benefits offered under the UPS |
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Employee Contribution | 10% of (Basic Pay + Dearness Allowance Amount) | |
Employee Employers Contribution | 18.5% of (Basic Pay + Dearness Allowance) |
These benefits, while like the old pension scheme, also mandate employee contribution, giving a fair pension system that also reduces the financial burden on the government.
Also Read: Retirement Planning in India
What are the benefits of choosing UPS over NPS?
The NPS scheme is a market-linked retirement investment scheme where employees still contribute 10% of their (Basic pay + Dearness allowance) amount and the employer contributes 14%. This contribution is invested in a pension fund managed by the PFRDA and the pension amount is dependent on their market performance. This removes the ‘Assured Pension’ feature that the old pension scheme and the latest UPS scheme offer. The UPS scheme also comes with a few other benefits, so we are listing them below for your easy reference:
1. Assured Pension:The UPS offers an assured pension amount of 50% of average pay for the last 12 months before retirement for employees with a minimum of 25 years of service. For employees with 10-25 years of service, a proportionate pension is paid. For employees with a minimum of 10 years of service, a monthly pension of Rs.10000 is assured.
2. Pension to family:Upon death of the pensioner, 60% of the last drawn pension amount will be paid to their spouse till their death.
3. Employer Contribution:The employer, Central Govt. in this case, also contributes towards the scheme. They contribute 18.5% of the (Basic pay + Dearness allowance) component every month.
4. Inflation Indexation Benefit:Based on the All-India Consumer Price Index for Industrial Workers (AICPI-IW), a Dearness Relief (DR) will be provided for Inflation Indexation. This dearness relief is offered on all three – Assured Pension, Minimum Assured Pension, and the Assured Family Pension amounts.
5. Lump sum settlement:At the time of superannuation, the pensioners are eligible for their Gratuity + a lump sum payment. This lump sum amount will be equal to 1/10th of their monthly emoluments, that is (Pay + DA) as on the date of superannuation, for every 6 months of service completed.
Also Read: Plan Your Retirement With The Right Mutual Fund Investments
Who is eligible to get benefits under the UPS – Unified Pension Scheme?
As of date, this scheme is active for central government employees. The state of Maharashtra has also adopted it for its government employees.
- Govt. employees who have completed a minimum of 10 years of service are eligible for the minimum pension amount of Rs.10000 per month.
- Govt. employees who have completed at least 25 years of service are eligible for the ‘50% of average pay of the last 12 months before retirement’ amount every month.
- Govt. employees already covered under the NPS can switch to the UPS scheme.
- Govt. employees planning to take VRS (Voluntary Retirement Scheme) under the NPS scheme are also eligible to switch to the UPS.
UPS – Unified Pension Scheme – FAQs:
1. Is UPS a mandatory pension scheme?
No, UPS is not mandatory. It is an option available for central govt. employees that are currently entitled to receive pension through the NPS scheme. Based on the benefit calculation, employees can choose to switch over to UPS or stay with NPS.
2. Can private company employees also opt for UPS?
No, currently the UPS pension scheme is available only for central govt. employees, with an option for state governments to adopt. Private sector employees are currently not eligible for this pension scheme.
3. Is UPS scheme applicable to state government employees too?
Currently, the UPS scheme has been introduced for central government employees, with state governments given the option to adopt it for their employees. State governments are allowed to adopt the same for their employees. With Maharashtra already adopting it, more states could follow suit.
4. When will the UPS come into effect?
The UPS scheme was introduced in August 2024 and will come into effect from the April 2025 financial year.
5. Is UPS better than NPS?
Both UPS and NPS have their own benefits. While the NPS scheme doesn’t offer assured pension amount every month, the contributions are invested in market-linked instruments, that could fetch higher returns. But UPS offers an assured pension amount that would give a stable pension upon retirement.
Disclaimer:This page includes information that has been compiled from many sources and is only offered for informational purposes. Since this type of data might change over time, we cannot guarantee that the information supplied or included within it is accurate. It is anticipated that the user would confirm with the relevant source prior to taking any choices or actions.