After passed a proposal to launch a new initiative called the “Unified Pension Scheme” (UPS). The scheme seems to have the mixture of the NPS and old pension scheme, the NDA discontinued the old pension scheme for all government employees appointed on or after January 1, 2004 and since then, these employees were covered under the National Pension System (NPS).
Key Features or Difference Between the UPS, NPS and OPS
Unified Pension Scheme (UPS):
- Eligibility: Only for government employees.
- Pension Guarantee: 50% of the average basic salary of the last 12 months.
- Contributions: Employees contribute 10% of their basic salary+DA, while the government contributes 18.5%.
- Additional Fund: Includes a separate pooled fund, supported by an extra 8.5% government contribution.
The UPS (Unified Pension Scheme) which subscribers or contributors must to know:
Assured Pension: UPS Subscribers, with at least 25 years of service will receive a guaranteed pension equal to 50% of their average basic pay over the last 12 months before retirement.
Family Pension: In the event of the subscriber’s demise, a family member will receive a pension equal to 60% of the pension the subscriber was receiving.
Minimum Pension Package: Upon retirement employees who have completed at least 10 years of service are guaranteed a minimum pension of ₹10,000 per month.
Inflation Indexation (AICPI-IW): The pension, family pension, and minimum pension will be adjusted for inflation based on the All India Consumer Price Index for Industrial Workers (AICPI-IW). Pensions will be regularly updated to match inflation and changes in the cost of living, ensuring that they maintain their value and purchasing power over time.
Gratuity: Upon retirement, employees are entitled to a lump-sum gratuity payment. This is calculated as 1/10 of their monthly emoluments (Basic Pay + DA) as of the superannuation date for every completed six months of completed service.
No Extra Cost: Employees will continue to contribute 10% of their salary, while the government’s contribution increases from 14% to 18.5%.
The Unified Pension Scheme (UPS), which can be seen as an upgraded version of the existing National Pension System (NPS), was announced on Saturday, August 24, 2024. Under this new scheme, government employees will continue to contribute 10% of their Basic + D.A., while the government’s contribution has been increased from 14% to 18.5%.
However, the full details of the Unified Pension Scheme (UPS) are not yet available, and an official notification is still awaited to clarify the specifics of the new scheme. If your retirement occurs within six or seven months after a promotion, you may not receive any financial benefit from that promotion under the UPS, as the pension calculation will not consider the increased basic pay immediately following your promotion. Calculation table provide in the last please.
National Pension System (NPS):
- Eligibility: Open for both government and private sector employees.
- Pension Guarantee: No guaranteed fixed pension; the amount depends on market returns.
- Contributions: Employees contribute 10% of their salary, with a 14% government contribution for government employees.
- Withdrawals: Allows up to 60% of the retirement corpus to be withdrawn tax-free.
Government and Employee Contributions: Employees contribute 10% of their basic salary, and the government contributes was also 10% and increase its as 14% w.e.f. 01.04. 2019.
Market-Linked Pension: The pension amount under NPS is not guaranteed and depends on market performance, unlike UPS, which offers a fixed pension of 50% of the average of last 12 basic pay before retirement for those who joined after January 1, 2004.
Family Pension: The family pension under NPS is based on the accumulated pension fund and the annuity plan chosen at retirement.
Widespread Implementation: NPS is mandatory for all central government employees (except armed forces) who joined after January 1, 2004. It is also available for private-sector employees, with many state and Union Territory governments adopting it for their new employees.
Remember, amendments were made to the Central Civil Services (Pension) Rules, 1972 and the Central Civil Services (Commutation of Pension) Rules on December 30, 2003 to facilitate this change. The NPS, a contribution-based pension scheme, was officially introduced for central government employees through a notification by the Ministry of Finance on December 22, 2003, and became mandatory for all new recruits to central government services (except the armed forces) from January 1, 2004.
Old Pension Scheme (OPS):
- Eligibility: only to government employees who join on or before 31.12.2003.
- Pension Guarantee: Provided a guaranteed pension, 50% of the last basic pay drawn.
- Contributions: No employee contributions required like NPS or UPS.
- Funding: The government fully funded the pension, with no need for market-linked investments.
Fixed Pension: Retired government employees received a monthly pension equal to 50% of their last drawn salary, which increased with hikes in the Dearness Allowance (DA).
Gratuity Payment: Upon retirement, employees were entitled to a gratuity payment, with a maximum limit of ₹20 lakh.
Family Pension: If a retired employee passed away, their family continued to receive the pension.
No Employee Contributions: Unlike UPS and NPS, employees did not contribute to their pension under OPS; the government fully funded it.
“Old Pension Scheme (OPS) to NPS was a very sharp shift. It is addressed now by the UPS,” N.R. Bhanumurthy (economist)
The upcoming new pension scheme UPS (Unified Pension Scheme): How to Calculate your Pension Under UPS
The Central government has made a significant shift from the NPS-like system by introducing the Unified Pension Scheme (UPS), which can be described as an upgraded version of NPS. Effective from April 1, 2025, this new scheme ensures that approximately 23 lakh central government employees will receive 50% of the average basic pay drawn over their last 12 months before retirement, provided they have completed at least 25 years of service. Unlike the old pension scheme, this calculation is not based on the last basic pay drawn.
If your basic pay is ₹68,600 in February 2024 and you get a promotion on August 1, 2024, choosing to receive your next increment in January 2025, you would receive two increments—one for your annual increase and one for the promotion. This would raise your basic pay to ₹72,800. However, under the new Unified Pension Scheme (UPS), your pension will not be based on this last basic pay of ₹72,800. Instead, it will be calculated on the average basic pay of the last 12 months, which comes to ₹68,950. Therefore, your pension will be 50% of this average, amounting to ₹34,475.
In comparison, the Old Pension Scheme (OPS) would have calculated your pension based on your last basic pay of ₹72,800, giving you a higher pension of ₹36,400. This difference means you will receive a lower pension under the UPS, causing a significant lifetime loss, and the promotion just before retirement does not benefit you financially if you retire on January 31, 2025.
| Sr.no. | Month-Year | Basic Pay |
|---|---|---|
| 1 | February-2024 | 68,600 |
| 2 | March-2024 | 68,600 |
| 3 | April-2024 | 68,600 |
| 4 | May-2024 | 68,600 |
| 5 | June-2024 | 68,600 |
| 6 | July-2024 | 68,600 |
| 7 | August-2024 | 68,600 |
| 8 | September-2024 | 68,600 |
| 9 | October-2024 | 68,600 |
| 10 | November-2024 | 68,600 |
| 11 | December-2024 | 68,600 |
| 12 | January-2025 | 72,800 |
| Grand total of last 12 months Basic Pay | 8,27,400 | |
| Average of the last 12 months Basic Pay | 68,950 | |
According to the above table, the basic pension under the Unified Pension Scheme (UPS) is ₹34,475, while under the Old Pension Scheme (OPS), it is ₹36,400, resulting in a difference of ₹1,925 in favor of OPS. Additionally, the Dearness Allowance (DA) differs, with ₹17,238 under UPS and ₹18,200 under OPS. If the Fixed Medical Allowance (FMA) is not included in the UPS, the total difference between the UPS and OPS pensions is ₹3,888, with OPS offering a higher amount.
| Remarks | UPS | OPS | NPS |
|---|---|---|---|
| Last Basic Pay Drawn | 72,800 | 72,800 | —- |
| Grand total of last 12 months Basic Pay | 8,27,400 | not required | —- |
| Average of the last 12 months Basic Pay | 68,950 | 72,800 | —- |
| Basic Pension as UPS | 34,475 | 36,400 | —- |
| DA @50% | 17,238 | 18,200 | —- |
| FMA | not confirmed | 1,000 | —- |
| Total Pension per month | 51,713 | 55,600 | —- |
Compared to the Old Pension Scheme (OPS), which provided a fixed pension of 50% of the last drawn salary with no employee contributions and full government funding, the UPS shows a slight disadvantage in pension amounts. For instance, the basic pension under UPS is ₹34,475, compared to ₹36,400 under OPS, and the total difference, including Dearness Allowance, is ₹3,888 if the Fixed Medical Allowance is not included.
The Unified Pension Scheme (UPS) offers government employees a guaranteed pension of 50% of the average basic salary over the last 12 months, with employees contributing 10% and the government contributing 18.5%. It includes inflation protection and a minimum pension of ₹10,000 per month.
In contrast, the National Pension System (NPS) applies to both government and private sector employees, with no guaranteed pension as it is linked to market performance, requiring employee contributions of 10% and government contributions of 14%.
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