Unified Pension Scheme:
Centre finally approved the Unified Pension Scheme(UPS) on August 24, 2024 which benefits 23 lakh central government employees. The NPS system which was came into effect from January 1, 2004 , create dissatisfaction for government Employees.
The UPS is somehow similar to the Old Pension Scheme(OPS) which assures the government Employees of 50% of their last drawn salary as a lifelong monthly benefit. Which creates a fiscal burden on government Revenue.
Cabinet, led by PM @narendramodi Ji, has approved the Unified Pension Scheme (UPS), effective from April 1, 2025.
🧵Understand UPS in 10 points.👇 pic.twitter.com/9EkO5v8QBi
— Ashwini Vaishnaw (@AshwiniVaishnaw) August 25, 2024
1. Assured Pension: Retirees will now receive 50% of their average basic pay over the last 12 months before retirement as a pension for a minimum qualifying service of 25 years.
Proportionate for lesser service period upto a minimum of 10 years of service. pic.twitter.com/nggM3muui2
— Ashwini Vaishnaw (@AshwiniVaishnaw) August 25, 2024
Features all 3 pension schemes
1. Old Pension Scheme(OPS)
Before 2004 the OPS which is provides greater benefit to all government Employees after their retirement , by providing a 50% of their last drawn salary as pension for lifelong. For this the employees need not contribute anything during services.
It also provided dearness relief, which adjusted the pension according to the inflation and also offered a family pension to the dependents after their demise.
As this scheme didn’t require any contributions from employees making it a better scheme for them , but it imposed a significant financial burden on government.
2. National Pension Scheme(NPS)
In 2004 government introduced NPS for employees who joined after January 1, 2004, except for armed forces. This scheme develops a contributory system where both employees and government contributed to the pension fund 10% and 14% of employees salary, respectively.
These contributions were invested in market linked securities so it introduced the market risks, leading to uncertainty to the pension outcome which depends on performance on investments.
While it provided the flexibility in investment choices and aimed to reduce the financial burden on government. This lacked the assured benefit of OPS which create dissatisfaction among government employees so they forced to go on strike and start protested against it.
To look this issues in March 2023 a committee was formed by the govt. under the chairmanship of the then Finance Secretary TV Somanathan to explore options to enhancing the NPS benefits without returning to the OPS which create a financial burden for government.
3. Unified Pension Scheme(UPS)
Key features of Unified Pension Scheme includes:
UPS is being implemented by central govt. to benefit approx 23 lakh central government employees
Under this scheme the government employees will receive a guaranteed pension of 50% of their average basic pay drawn over the last 12 months before the superannuation. This is available to employees with at least 25 years of service, for proportionate adjustments for those with a minimum of 10 years of service.
This will provide a assured family pension of 60% of the pension of the employee immediately before his/her demise. Under OPS this rate was varied generally lower than 60%.
This scheme assures a minimum pension of ₹10,000/- per month on superannuation after a minimum of 10 years of service.
It is also a contributory scheme where employees and government shares 10% and 18.5% of salary instead of 14% by government through NPS. With this the government’s contribution may be adjusted based on periodical actuarial assessments.
With this the employees will receive a lump sum amount at retirement time which is equivalent to a 10th of their monthly emoluments (pay and dearness allowance) for every completed 6 months of service.
While the NPS will continue to be an option, the UPS is expected to be a good option to government Employees due to its guaranteed benefits and fixed pension.