What is Unified Pension System - Difference Between UPS, NPS and OPS - Avail Benefits of UPS

Pension has always been one of the most pivotal reasons for people to chase government jobs. Pension helped retired employees and their families to sustain their living standards until younger members of the family started earning. The amount of pension received by the employees and later their spouses or dependent children has been in many cases only source of income after retirement. Thus in India, pension has always been regarded epitome of a job and financial security. This article will cover the new pension scheme approved by the government, the difference between earlier pension schemes, and the present schemes, and other important facts one should know.

Latest Announcement by Govt on UPS

On 24 August 2024, the NDA government approved another pension scheme that will be there along with the current National Pension Scheme (NPS). The withdrawal of the Old Pension Scheme (OPS) intrigued many in 2004 when the NPS was introduced and OPS ceased to exist. To bridge the gap between these two schemes for pension payments, the government has come up with an all-new pension scheme that is Unified Pension Scheme (UPS).

This pension scheme will be effective from the upcoming fiscal that FY2025-26 which is from 1 April 2025. UPS will have the features of both the pension plans that are Old Pension Scheme and New Pension Scheme to offer a wholesome retirement cushion to the employees. Narendra Modi has approved the UPS after extensive communications and discussions with the Joint Consultative Mechanism.

What is the Unified Pension System or UPS?

Unified Pension Scheme (UPS) is a new scheme that has been designed to amalgamate the benefits of both OPS and NPS under one roof. This is a pension scheme introduced this year that is 2024 that offers a family pension, a guaranteed pension amount, and a minimum pension for all the people working in central government jobs. The benefits of UPS can be availed by the state government employees too and even the ones who are covered under NPS can opt for UPS which is one of the most crucial facts about this scheme.

This pension scheme guarantees 50% of the average basic pay of the past 12 months preceding the date of retirement as the guaranteed pension for the employee, provided the employee has served the central government for at least 25 years. Under this scheme, the minimum pension will be ₹ 10000 per month for employees who have at least 10 years in the service upon superannuation. If the pensioner dies, then 60% of the pension amount, which he or she received right before the demise, will be offered to the family.

History of pension systems in India

Pension Systems	Tenure	Facts
The Royal Commission on Civil Establishment	1881	The first pension system in India Awarded the first pension to government employees Later benefits extended to public sector employees as well
Old Pension Scheme	1924	Government employees who served for at least 10 years, were eligible to receive a guaranteed pension from the age of 58 years.
National Pension Scheme (System)	2004	Covers all individuals even NRIs, self-employed can avail of NPS benefits Different market-linked annuity schemes to choose from Regular investments – annuity after retirement 60% as a lump sum on retirement, 40% as an annuity No assured pension amount
Unified Pension Scheme	2024	Guaranteed pension Minimum Pension amount – ₹ 10000 50% of the basic average pay of the past 12 months before retirement

Difference between UPS, NPS, and OPS

Basis	UPS	NPS	OPS
Eligibility	Government Employees (Currently only Central but can be extended to state government as well) 25 years of service for guaranteed pension 10 years of service for a minimum pension	Any individual between 18 years and 60 years even NRIs and unorganised or self-employed people	All Government Employees
Amount of Pension	50% of the average basic pay of the preceding 12 months from retirement date	Depending on the type of investment instruments chosen by the pensioner which determine the accumulated corpus	Higher of - 50% of the last drawn salary plus DA - Average earnings of 10 months preceding the retirement date.
Minimum Pension	₹ 10000 (provided the employee has served for 10 years at least)	Minimum pension also depends on the choices of investments	₹ 9000 per month ( for employees who served at least 10 years)
Gratuity	It is paid along with the lump sum amount	No Gratuity Benefit under NPS	Gratuity up to ₹ 20 lakh
Family Pension	60% of the pension provided to the pensioner right before the death of the pensioner	Family pension amount depends on the accumulated amount in the pension fund and the annuity plan you have chosen	A family receives the full pension in case of Pensioner’s death
Contribution	Employer – 18.5% of the basic salary Employee – 10% of the basic salary	Employer – 14% of the basic salary Employee – 10% of the basic salary	No contribution
Risks involved	No Risk – Guaranteed/ assured pension	Market risks	No risk
Lump sum	1/10^th of the last drawn salary for every six months of completed service	60% of the corpus	40% of the total amount
Inflation	Offers inflation protection	No provision for DA increments	Inflation is adjusted by semi-annual monitoring of the pension and adjusting DA accordingly.
Taxation	Yet to be decided	60% lump sum is tax-free 40% invested in annuity remains taxable	No tax benefits

How can the benefits of UPS be availed?

You need to become a central government employee or state government employee on or after 1 April 2025
You need to remain in service for at least ten years to receive the minimum ₹ 10000 pension.
If you work for 25 years in the department or other departments allocated to you by the government, then you will be eligible to receive the guaranteed pension.
You can also voluntarily opt for UPS if you are already a central government employee. If you are enrolled under NPS, you can easily opt for UPS without any hassle.

Pros and Cons of UPS

The benefits of UPS include:

Guaranteed pension or fixed pension amount of 50% of the average basic pay of the past twelve months preceding the retirement date.
Minimum pension of ₹ 10000
Pension calculation on a pro-rata basis for employees having working tenure of more than 10 years but less than 25 years with the government
Family pension in case of pensioner’s demise
Protection against inflation by indexing to the ALL India Consumer Price Index For Industrial Workers

The cons or challenges of UPS include:

It needs contributions from employees
Less provision for pension amount revision
Unclear process of migration from NPS to UPS

Conclusion

Planning your retirement and understanding the pension scheme, that suits your retirement planning the best, is crucial for financial security. With the introduction of UPS, while many gaps in the NPS can be resolved for the central government employees, the others still have to do with the existing NPS. While choosing UPS or another pension scheme, make sure you check the minimum pension received, eligibility criteria, taxation, contribution, and everything that can affect returns.