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