The Union Cabinet has approved a major reform in the pension system by introducing the Unified Pension Scheme (UPS). The introduction of the Unified Pension Scheme comes in response to widespread demands from government employees for changes in the New Pension Scheme (NPS). The NPS, which was implemented in the early 2000s, was criticised for not providing a guaranteed pension amount, leaving many employees uncertain about their financial security after retirement.
“Government employees have demanded some changes in the New Pension Schemes. For this, PM Modi constituted a committee under the chairmanship of Cabinet Secretary TV Somanathan. This committee held more than 100 meetings with different organisations and nearly all the states,” Union minister Ashwini Vaishnaw said at a Cabinet briefing.
What is Unified Pension Scheme?
The Central Government announced the Unified Pension Scheme (UPS) for government employees. It aims to provide stability, dignity and financial security for government employees post-retirement, ensuring their well-being and a secure future.
Currently, government employees are covered under the National Pension System (NPS). These employees have the option to continue with NPS or switch to the UPS scheme. However, once employees choose UPS, the decision is final and cannot be reversed.
The state governments can also adopt and implement the UPS scheme for state government employees. Maharashtra is the first state to implement UPS. The Maharashtra cabinet decided to implement the UPS scheme for state government employees on 25 August 2024.
If all states adopt the UPS scheme, it could benefit over 90 lakh government employees currently covered under the NPS scheme across India.
Five pillars of Unified Pension Scheme (UPS)
Vaishnaw outlined that the UPS is built on five key pillars. The first and most significant pillar is the assured pension, which directly addresses the primary demand of government employees for a guaranteed post-retirement income. The other pillars, which include the assured family pension and the assured minimum pension, further enhance the financial security provided by the scheme.
Unified Pension Scheme details
| Scheme Name | Unified Pension Scheme (UPS) |
| Announced on | 24 August 2024 |
| Implementation Date | 1 April 2025 |
| Beneficiaries | Central Government employees |
| Employee Contribution | 10% of basic salary + dearness allowance |
| Employer Contribution | 18.5% of basic salary + dearness allowance |
| Benefits |
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What are the features of UPS?
Assured Pension:Under the new scheme, retirees will receive a pension amounting to 50% of their average basic pay from the last 12 months of service before superannuation. This benefit is designed for those who have completed a minimum of 25 years of service. For employees with less than 25 years but more than 10 years of service, the pension will be proportionate to the length of service.
Assured Family Pension:In the event of an employee’s demise, their family will receive a pension that amounts to 60% of the pension the employee was receiving immediately before their death. This provision ensures financial security for the employee’s dependents.
Assured Minimum Pension:The scheme also guarantees a minimum pension of ₹10,000 per month, provided the employee has served for at least 10 years. This measure is particularly significant for employees with lower pay scales, offering them a safety net against inflation and financial uncertainties post-retirement.
UPS Scheme eligibility
- Government employees who have completed at least 10 years of service are eligible for a fixed pension amount.
- Government employees who have completed at least 25 years of service are eligible to receive a percentage of their average basic pay as a pension.
- Government employees who are covered under the National Pension System (NPS) and those opting for Voluntary Retirement Scheme (VRS) under NPS.
UPS Scheme benefits
- Assured pension: Retired employees will receive a pension of 50% of their average basic pay over the previous 12 months before retirement. This benefit is provided to employees with at least 25 years of service. Proportionate pension benefits are offered to employees with shorter service periods (10 years to 25 years).
- Government contribution: The government will contribute 18.5% of the employee’s basic salary to the pension fund. The employees will contribute 10% of their basic salary to the pension fund.
- Assured family pension: In case of the pensioner’s death, 60% of the pension immediately before the retiree’s demise will be given to her/his spouse.
- Assured minimum pension: An employee with at least 10 years of service will receive Rs. 10,000 per month upon superannuation.
- Inflation indexation: Inflation indexation will be provided on assured pension, assured minimum pension and assured family pension. The Dearness Relief (DR) will be based on the All India Consumer Price Index for Industrial Workers (AICPI-IW) similar to service employees.
- Lump sum payment: Retirees will receive a lump sum payment along with their gratuity at the time of superannuation. This payment will be equal to one-tenth of the monthly emoluments (pay + DA) as on the superannuation date for every six months of completed service. It will not reduce the amount of assured pension.
UPS Scheme returns
The UPS scheme provides an assured pension amount to government employees upon their retirement. Employers will contribute 18.5% of the basic salary + dearness allowance, while employees will contribute 10% of the basic salary + dearness allowance every month.
For employees who have retired after a minimum service of 25 years, 50% of their average basic pay drawn in the previous 12 months prior to retirement will be provided as a pension. For employees who have retired after a minimum service of 10 years, Rs. 10,000 per month is provided as a pension after retirement.
FAQs
Which is better, NPS or UPS?
UPS provides a guaranteed pension amount, while the pension amount under NPS depends on the investments made in the market-linked security schemes. While UPS provides an assured pension, NPS may provide a higher pension amount due to higher returns in the market-linked investments. UPS may be better for employees who do not want to take any risk and get a guaranteed pension amount, while NPS may be better for employees who are willing to make market-based investments and get a higher return.
What is the difference between OPS and UPS pension?
The OPS provides a pension of 50% of the last drawn salary of employees, while UPS also provides a pension of 50% of the last drawn salary of employees but only for those employees who have completed 25 years of service.
Employees who retire with 10 to 25 years of service will get a proportionate amount as a pension under UPS. Employees do not have to contribute to the pension fund under OPS, but employees need to contribute 10% of their basic pay under UPS. Similarly, the government will also contribute 18.5% of the basic salary under UPS.