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Unified Pension Scheme; UPS In Effect From April 1; Know Eligibility, DA, Benefits; Is It Better Than NPS?
The Unified Pension Scheme (UPS) has been approved by the central government employees to reform the national pension system (NPS). The new pension scheme is going to take effect from April 1, 2025, and is expected to benefit up to 23 lakh central government employees. Not just that the same architecture has been designed and adopted by State Governments, which will benefit over 90 lakh State Government employees who are presently on NPS.
Last year, Ram Karan Yadav, General Manager, Central Railway had also revealed that there are 96,039 Employees as on date and 70,778 Employees i.e. 73.69% who are New Pension Scheme subscribers are likely to be benefitted.
Yadav also said, the current contribution of Central Railway is 45.5 crores per month (as per 14% contribution of Employer) for all the employees who are covered under New Pension Scheme.
Under UPS, the government's contribution will rise to 18.5%, which will increase their pensions.
Some of the major salient features of UPS are:
1. Assured Pension: UPS will offer 50 % of the average basic pay drawn over the last 12 months before superannuation for a minimum qualifying service of 25 years. Proportionate for lesser service period up to a minimum of 10 years of service
2. Assured Family Pension: Under the new scheme, up to 60% of the pension of the employee immediately before her/his demise
3. Assured Minimum Pension: Meanwhile, the minimum assured pension is Rs 10,000 per month on superannuation after a minimum 10 years of service
4. Inflation Indexation: In general terms, inflation indexation is applied to adjust the cost of investment against inflation. With indexation, the pensioners will be able to lower their long-term capital gains, which will trim down taxable income. Under UPS, inflation indexation will be imposed on:
- On assured pension, on assured family pension and assured minimum pension.
- Dearness Relief based on the All India Consumer Price Index for Industrial Workers (AICPI-IW) as in the case of serving employees
5. The new scheme will also bring in the benefit of a lump-Sum payment at superannuation in addition to gratuity
6. Furthermore, 1/10th of the monthly emolument (pay + DA) as on the date of superannuation for every completed six months of service
7. This payment will not reduce the quantum of assured pension
Among other key benefits that were announced by the government are:
- Provisions of UPS will apply to past retirees of NPS (who have already superannuated).
- Arrears for the past period will be paid with interest @PPF rates
- UPS will be available as an option to the employees. Existing as well as future employees will have the option of joining NPS or UPS. Choice, once exercised, will be final
- Employee contribution will not increase. The government will provide additional contributions for implementing the UPS
- Government contribution increased from 14 to 18.5%
Comparison between UPS and NPS, which is better?
| Factors | UPS | NPS |
|---|---|---|
| Government Contribution | 18.5% of the employee's basic salary and DA. | 14% of the employee's basic salary and DA. |
| Assured Pension | Provides a guaranteed pension equal to 50% of the average basic salary for the last 12 months before retirement for those with 25 years of service. | The pension is not guaranteed and depends on market returns. The value fluctuates based on the investments and the accumulated corpus. |
| Family Pension | Guarantees 60% of the pension to the family in the event of the pensioner's death. | The family pension depends on the accumulated corpus and the annuity plan chosen. |
| Risk and Return | Offers no market risk and guaranteed fixed returns; suitable for risk-averse employees | Since it is a market-linked pension scheme, the returns vary based on the performance of the chosen investments. This means potentially higher returns but with greater risk. |
| Lump-Sum Payment | Provides a lump sum without affecting the pension amount. | Allows up to 60% of the total accumulated corpus to be withdrawn. |
(Table Details Attributed To IndusInd Bank Website):
Which is better? As per the IndusInd Bank website, the Unified Pension Scheme (UPS) provides a secure and predictable pension solution for government employees. In the UPS vs NPS debate, while NPS may lead to potentially higher returns due to the market-linked investments, UPS focuses on assured benefits and inflation protection.
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