On 24th August, in a significant step to enhance retirement benefits for central government employees, the Cabinet headed by Prime Minister Narendra Modi unveiled the Unified Pension Scheme (UPS). This new scheme seeks to merge the advantages of the old pension scheme (OPS ) with those of the current National Pension Scheme ( NPS ).
Starting from April 1, 2025, the UPS will offer guaranteed pensions, family pensions, and minimum pensions to 23 lakh government employees.
The main distinction between the OPS and the UPS is that the former was an unfunded scheme, whereas both the UPS and the existing NPS are fully funded pension schemes.
What Is a Funded Pension Scheme?
A funded pension scheme is structured to fulfill both current and future financial obligations by relying upon the returns generated from the retirement fund’s investment.
It is supported by mandatory contributions from both the employee and the employer, along with the yearly budget allocations.
Most central government employees are anticipated to transition from the NPS to the UPS as the new scheme promises a monthly pension equivalent to 50 percent of the average base from the last 12 months for those who have completed 25 years of service addressing the major demand of staff unions.
The NPS, being fully funded and primarily invested in federal debt, tied pensions to market returns without guaranteeing any specific payout, which was a major concern for the employees.
The OPS, which was discontinued in 2004, provided a monthly pension equal to half of an employee’s base pay for those who have served at least 20 years.
Similar to OPS, the newly introduced scheme will also include a lump sum payment upon retirement along with gratuity.
Under the OPS, employees received a fixed pension of 50 % of their base salary without contributing any portion of their salaries towards benefits, leading to its financial unsustainability as pension liabilities increased.
In the newly introduced unified pension scheme, the government’s contribution will increase to 18.5 %, while employees will contribute to 10 %. The higher government contribution is the main reason the UPS can offer an assured pension amount.
What Else UPS Is Offering?
Assured pension –UPS beneficiaries will get an assured pension under the scheme. They would be entitled to 50 % of the average basic pay drawn over the last 12 months before superannuation. This feature is available for employees with at least 25 years of service and pay is to be proportionate for lesser service periods up to a minimum of 10 years of service.
Assured Family Pension – The scheme also provides the benefits of an assured family pension. Under this feature of the UPS, the beneficiary’s family member will get 50 percent of the pension immediately after their demise.
Assured Minimum Pension -Employees retiring with less than 25 years of service are also eligible for the pension under UPS. The scheme ensures a minimum pension of Rs 10,000 per month upon retirement, provided that they have completed at least 10 years of service.
Pension Cheques to Rise Claims Report
Government employees enrolled in the central government’s new scheme UPS, are expected to see a significant increase in their pension payments, according to a report.
The Times of India noted that the government contribution under UPS will increase from 14 % to 18.5 %, likely resulting in a 19 % overall boost to pensions for employees starting with a month’s salary of Rs.50000.
The report factors in a 3% annual salary increase and an 8% compounded annual growth rate, but did not include dearness allowances pay commission awards, As a result, the actual pension corpus could be even greater, the report noted.
Currently, the center has three pension fund managers for its employees, State Bank Of India (SBI), Life Insurance Corporation (LIC), and Unit Trust of India (UNI)
