Unified Pension Scheme (UPS) Detailed Explanation with Calculations – Unified Pension Scheme (UPS) vs National Pension System (NPS) vs Old Pension Scheme (OPS)

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What is Unified Pension Scheme (UPS) The Unified Pension Scheme (UPS) is a pension plan announced by the Central Government for government employees to ensure financial security and stability post-retirement. It provides a guaranteed pension to employees, aiming for their well-being and a secure future. Key Features:
  • Voluntary Switching: Employees currently under the National Pension System (NPS) can opt to switch to UPS, but this decision is irrevocable.
  • Adoption by States: State governments have the option to implement UPS for their employees. Maharashtra is the first state to adopt this scheme (effective 25 August 2024).
  • Wide Coverage Potential: If all states adopt UPS, over 90 lakh government employees in India, currently under NPS, could benefit from the scheme.
एकीकृत पेंशन योजना (UPS) क्या है एकीकृत पेंशन योजना (UPS) केंद्र सरकार द्वारा सरकारी कर्मचारियों के लिए घोषित एक पेंशन योजना है, जो सेवानिवृत्ति के बाद वित्तीय सुरक्षा और स्थिरता सुनिश्चित करती है। यह कर्मचारियों को उनकी भलाई और सुरक्षित भविष्य के लिए गारंटीकृत पेंशन प्रदान करती है। मुख्य विशेषताएं: स्वैच्छिक स्विचिंग: वर्तमान में राष्ट्रीय पेंशन प्रणाली (NPS) के तहत कर्मचारी UPS में स्विच करने का विकल्प चुन सकते हैं, लेकिन यह निर्णय अपरिवर्तनीय है। राज्यों द्वारा अपनाना: राज्य सरकारों के पास अपने कर्मचारियों के लिए UPS को लागू करने का विकल्प है। महाराष्ट्र इस योजना को अपनाने वाला पहला राज्य है (25 अगस्त 2024 से प्रभावी)। व्यापक कवरेज क्षमता: यदि सभी राज्य UPS को अपनाते हैं, तो भारत में 90 लाख से अधिक सरकारी कर्मचारी, जो वर्तमान में NPS के तहत हैं, इस योजना से लाभान्वित हो सकते हैं।  

Detailed Explanation with Calculations for the Features of the New Unified Pension Scheme (UPS)

  1. Assured Pension:

Case I: The scheme provides an assured pension of 50% of the average basic pay drawn over the last 12 months before superannuation, for a minimum qualifying service of 25 years.

  •       Example 1: Employee A has an average basic pay of ₹60,000 over the last 12 months and has completed 25 years of service.

o   Assured Pension = 50% of ₹60,000

o   Calculation: 50% of ₹60,000 = ₹30,000 per month.

Case I: The pension amount is proportionately reduced for service periods between 10 to 25 years.

  •       Example 2: Employee B has an average basic pay of ₹60,000 over the last 12 months but has only completed 15 years of service.

o   Service Ratio = 15 years / 25 years = 0.6 (60%)

o   Assured Pension = 50% of ₹60,000 × 0.6

o   Calculation: 50% of ₹60,000 = ₹30,000 × 0.6 = ₹18,000 per month.

  1. Assured Family Pension:
  •       Feature: The scheme ensures that the employee’s family receives 60% of the pension that the employee was receiving immediately before their demise.
  •       Example: Employee A was receiving a pension of ₹30,000 per month before passing away.

o   Assured Family Pension = 60% of ₹30,000

o   Calculation: 60% of ₹30,000 = ₹18,000 per month.

  1. Assured Minimum Pension:
  •       Feature: The scheme guarantees a minimum pension of ₹10,000 per month upon superannuation, provided the employee has completed at least 10 years of service.
  •       Example: Employee C has completed 12 years of service, with an average basic pay of ₹15,000 per month.

o   50% of ₹15,000 = ₹7,500.

o   However, since this amount is less than the assured minimum pension, Employee C will receive the higher amount, which is ₹10,000 per month.

Feature

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

Pension Benefits

– 50% of the average basic pay over the last 12 months before retirement (minimum 25 years of service)

– Rs. 10,000 per month upon superannuation after a minimum of 10 years of service

First State to Implement

Maharashtra

Potential Coverage

Over 90 lakh government employees if adopted by all states

Feature

Unified Pension Scheme (UPS)

National Pension System (NPS)

Old Pension Scheme (OPS)

Introduction

To be implemented from 1 April 2025

Introduced on 1 January 2004 (for all citizens including NRIs aged 18-70 years)

Existed before NPS (until 31 December 2003), phased out for new employees

Pension Basis

50% of the average basic pay of the last 12 months

Market-linked, dependent on the performance of selected funds

Fixed pension based on the last drawn salary

Employee Contribution

10% of salary

10% of salary

No employee contribution

Government Contribution

18.5% of salary

14% of salary

Fully funded by the government

Assured Pension

Yes, 50% of last 12 months’ average basic pay

No assured pension; dependent on market returns

Yes, fixed pension amount based on the last drawn salary

Investment Options

Balanced approach with some assurance

Multiple investment options

No investment options; defined benefit scheme

Family Pension

Yes, 60% of the employee’s pension

No specific family pension component

Yes, family pension available

Tax Benefits

Yes, offers tax benefits

Substantial tax benefits under Sections 80C and 80CCD

Limited tax benefits; pension received is taxable

Risk Factor

Risk-free with guaranteed returns

Subject to market risks based on fund performance

Risk-free, with guaranteed returns

Lump Sum Benefit

1/10th of monthly emoluments for every six months of service

60% of corpus can be withdrawn as a lump sum; 40% must be used to purchase an annuity

No lump sum; only defined pension

Inflation Indexation

Yes, inflation-linked increments post-retirement

No specific indexation; returns depend on fund performance

Yes, with inflation-linked increments

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