Unified Pension Scheme (UPS) is an important initiative announced on 24th August 2024 by the Narendra Modi government to provide central government employees with assured pension after the retirement.
Applicability
The scheme will come into force from 1st April 2025.
Reason to introduce the Unified Pension Scheme (UPS)
The introduction of the Unified Pension Scheme (UPS) comes in response when there was strong criticism from government employees about the New Pension Scheme (NPS).
States decided to revert to the Old Pension Scheme
The opposition has used this discontent to gain political support. Some states have switched back to the Old Pension Scheme.
Opposition ruled states like in 2022 Chhattisgarh, Punjab, Rajasthan, and in 2023 Himachal Pradesh have reverted to the old Pensions Scheme (OPS).
Political Impact
The announcement of a novel pension scheme by the central government is a significant political move towards major political development before the upcoming assembly elections in Jammu & Kashmir, Haryana, Maharashtra and Jharkhand.
Advantages of Unified Pension Scheme
Unified Pension Scheme (UPS) promises retirees a fixed pension amount addressing one of the main criticisms of the New Pension Scheme (NPS), which did not guarantee a fixed pension.
Key features of Unified Pension Scheme
The key features are:
Assured pension
This would amount to 50% of the average basic pay drawn over the last 12 months prior to superannuation for a minimum qualifying service of 25 years.
This pay is to be proportionate for lesser service period upto a minimum of 10 years of service.
Assured minimum pension
In case of superannuation after minimum 10 years of service, the UPS has a provision of an assured minimum pension @10,000 per month.
Assured family pension
Retirees’ beneficiaries will receive 60% of the pension amount last drawn by him/her before their death.
For Example : Suppose a Central Government retired employee Mr. X was receiving Rs 40,000 after completing 25 year of service. Family after the retiree’s passing will get Rs (40,000 @ 60%) = 24,000.
Inflation indexation
On assured pension, on assured family pension and assured minimum pension Dearness Relief based on All India Consumer Price Index for Industrial Workers (AICPI-IW) as in case of service employees
Lump sum payment at superannuation in addition to gratuity
1/10th of monthly emoluments (pay + DA) as on the date of superannuation for every completed six months of service this payment will not reduce the quantum of assured pension.
How many employees will get this benefit?
The new Unified Pension Scheme will benefit 23 lakh government employees.
The state government will also be given the option to opt for the UPS.
If state governments opt for UPS, then the number of beneficiaries will be around 90 lakh.
About NPS
The New Pension Scheme replaced the Old Pension Scheme on 1st January 2004 as a part of the Centre’s effort to reform India’s pension policies.
The employees joining government services after the 2004 were slotted under New Pension Scheme.
Why NPS was introduced?
New Pension Scheme was introduced by the Atal Bihari Vajpayee government for some fundamental problem with the OPS.There was no dedicated pension fund and led to unsustainable government pension liabilities.With better health facilities leading to longer averages life spans, the OPS financially unviable in the long run.
Why New Pension Scheme was opposed?
It was opposed due to:
Firstly it eliminated an assured pension.
Secondly employees to contribute a portion of their salary with the government matching this contribution. The defined contribution comprised 10% (increased to 14% in 2019) of the basic salary and dearness allowance by the employee and a matching contribution by the government.
Individuals under NPS can choose from a range of schemes from low risk to high risk and pension managers promoted by public sector banks and financial institutions as well as private companies.
Schemes under the NPS are offered by nine pension fund managers sponsored by SBI, LIC, UTI, HDFC, ICICI, Kotak Mahindra, Aditya Birla, Tata and Max.
For Government employees, the NPS not only gave lower assured returns, it also implied emploee-contributions which was not the case with the OPS.
This was the reasons what drove the opposition to NPS.
About OPS
Under Old Pension Scheme (OPS), pension to government employees (both in central and states) was fixed at 50% of the last drawn basic pay.
In addition, there was DA which was calculated as a percentage of the basic salary to adjust for the steady increase in the cost of living.
FAQs
The UPS will come into effect from April 1, 2025.
The UPS will apply to all individuals who have retired under the New Pension Scheme (NPS) from 2004 onwards.
NPS retirees will receive arrears adjusted with the amount they have already drawn under the NPS.