Centre Launches Unified Pension Scheme (UPS): Key Benefits and What You Need to Know

The Union Cabinet has given the green light to the Unified Pension Scheme (UPS), which will offer government employees a guaranteed pension after they retire. The announcement was made on Saturday, August 24, by Union Information and Broadcasting Minister Ashwini Vaishnaw. This new scheme will benefit 23 lakh central government employees currently under the National Pension System (NPS). Starting from April 1, 2025, employees will have the option to choose between the NPS and the UPS.

T V Somanathan, the former Finance Secretary who headed the committee, stated that the UPS combines the best features of both the National Pension System (NPS) and the Old Pension Scheme (OPS). The UPS, approved during a Union Cabinet meeting led by Prime Minister Narendra Modi, is designed to provide a guaranteed pension, family pension, and a minimum assured pension for government employees.

Who Will Reap the Benefits of the New Unified Pension Scheme?

The Unified Pension Scheme (UPS) will benefit 23 lakh central government employees. State governments will also have the choice to adopt the UPS. If they do, the total number of people benefiting could reach around 90 lakh. The government has estimated that the cost of paying arrears will be Rs 800 crore, with an additional annual expense of about Rs 6,250 crore in the first year.

The UPS will start on April 1, 2025, and central government employees will be allowed to choose between the National Pension Scheme (NPS) and the UPS. Those who are already part of the NPS can also switch to the UPS if they prefer. During a press briefing, officials mentioned that most central government employees might find the UPS more beneficial than the NPS. The NPS, which began on April 1, 2004, applies to employees who started their jobs on or after that date. Unlike the old pension scheme, which guaranteed a defined benefit, the NPS is based on contributions made during the employee’s service.

What’s Inside the Unified Pension Scheme (UPS)?

The Unified Pension Scheme (UPS) stands out by offering retirees a guaranteed pension, addressing one of the main concerns government employees had with the National Pension System (NPS), which lacked a fixed pension.

Union Information and Broadcasting Minister Ashwini Vaishnaw emphasized that the UPS includes five essential features.

• Guaranteed Pension: Employees who have worked for at least 25 years will receive a pension equal to 50% of their average basic pay from the last 12 months before retirement. For those with less than 25 years but more than 10 years of service, the pension will be adjusted proportionally based on their length of service.
• Guaranteed Minimum Pension: For those who retire after at least 10 years of service, the scheme guarantees a minimum pension of Rs 10,000 per month.
• Guaranteed Family Pension: If the retiree passes away, their immediate family will receive 60% of the pension that was last drawn by the retiree.
• Inflation Indexation: The pensions mentioned above will be adjusted for inflation based on the All India Consumer Price Index for Industrial Workers, similar to the adjustments made for current employees.
• Lump Sum Payment at Retirement: Upon retirement, employees will receive a lump sum payment in addition to their gratuity. This amount will be determined as one-tenth of their monthly salary (including pay and dearness allowance) for every six months of completed service.

Comparing UPS, NPS, and OPS: What’s the Difference?

Unified Pension Scheme (UPS)

• Employees with at least 25 years of service will receive a guaranteed pension equal to 50% of their average basic pay over the last 12 months before retirement.
• For employees with less than 25 years of service, the pension will be adjusted according to their years of service, with the minimum qualifying period being 10 years.

New Pension Scheme (NPS)

• The New Pension Scheme (NPS) is a voluntary retirement savings plan based on contributions, introduced for government employees in 2004 and later extended to the private sector.
• NPS accounts are portable, allowing subscribers to continue their accounts even if they change jobs or move to different locations.
• The scheme is regulated by the Pension Fund Regulatory and Development Authority (PFRDA) and offers tax benefits under Sections 80C and 80CCD of the Income Tax Act.

Old Pension Scheme (OPS)

• Before 2004, the Old Pension Scheme (OPS) was the standard pension plan for government employees in India, providing a fixed benefit pension.
• Employees received a guaranteed pension equal to 50% of their last drawn salary, based on their years of service.
• Unlike NPS, employees did not contribute to the OPS, as the pension was fully funded by the government.