Unified Pension Scheme
The Indian government has recently unveiled the Unified Pension Scheme (UPS), which will come into effect on April 1, 2025.
This new scheme is designed to blend the best aspects of both the Old Pension Scheme (OPS) and the New Pension Scheme (NPS). HereтАЩs a breakdown of how the UPS differs from its predecessors and what it entails.
What is the Unified Pension Scheme (UPS)?
The UPS aims to address government employeesтАЩ concerns about the NPS by offering an assured pension, a major departure from the NPSтАЩs structure. The scheme promises a fixed pension amount, providing retirees with greater financial security. Key features of the UPS include:
- Assured Pension: Retirees will receive 50% of their average basic pay from the last 12 months before retirement, provided they have at least 25 years of service. For those with fewer years, the pension amount will be proportionately reduced, with a minimum service requirement of 10 years.
- Assured Minimum Pension: Employees who retire after a minimum of 10 years of service will receive a guaranteed minimum pension of Rs 10,000 per month.
- Assured Family Pension: In the event of the retiree’s death, their immediate family will be entitled to 60% of the pension amount the retiree was receiving.
- Inflation Indexation: The pensions under UPS will be indexed to inflation based on the All India Consumer Price Index for Industrial Workers, ensuring they keep pace with the cost of living.
- Lumpsum Payment at Superannuation: Retirees will receive a lumpsum payment calculated as 1/10th of their monthly emolument (pay + dearness allowance) for every six months of service completed, in addition to gratuity.
Why Was the NPS Introduced?
The NPS was introduced on January 1, 2004, to address the financial unsustainability of the OPS. Under the OPS, pensions were fixed at 50% of the last drawn basic pay, with an additional dearness allowance to adjust for inflation. However, the OPS was unfunded and led to a growing pension liability that the government found unsustainable in the long term, especially with increasing life expectancies.
What Was the NPS?
The NPS replaced the OPS with a funded pension system where both the employee and the government contribute to a pension fund.
The NPS features defined contributions, with employees contributing 10% of their basic salary and dearness allowance, matched by the government. Employees have the flexibility to choose from various investment options ranging from low to high risk.
The shift to the UPS comes in response to growing dissatisfaction with the NPS among government employees and political pressures. Several opposition-ruled states have reverted to the OPS, and with upcoming elections, the central governmentтАЩs introduction of the UPS aims to address these concerns and offer a more stable retirement solution for its employees.
The Unified Pension Scheme promises to provide a balance between financial sustainability and employee security, aiming to satisfy the needs of both retirees and current government employees.
