To provide its employees with an alternative to the current National Pension System (NPS), the government recently unveiled the Unified Pension Scheme (UPS). Government employees hired after 2004 now have to make a significant choice because this new program will launch in April 2025.
The UPS was introduced in the midst of continuous discussions about pension plans, specifically the Old Pension Scheme (OPS) and the National Pension Scheme (NPS).
Basics of NPS
Pension Amount: Under the NPS, pensions are linked to market performance. Employees contribute 10% of their salary, and the government adds 14%. The final pension amount varies based on how well the market performs.
Family Pension: The family pension is determined by the total savings and the annuity plan chosen at retirement.
Contributions: Both employees and the government contribute to the pension fund, and the payout depends on market conditions.
Applicability: The NPS is for all government employees (except those in the armed forces) who joined after January 1, 2004. It's also available to private sector employees.
Basics of UPS
Pension Amount: The UPS guarantees a pension of 50% of the average basic salary from the last 12 months before retirement. For those with 10 to 25 years of service, the pension amount is adjusted accordingly.
Family Pension: If the employee passes away for unforeseen reasons, the family is entitled to receive 60% of the employee's pension.
Contributions: Employees contribute 10% of their salary, similar to the NPS, but the government's contribution increases to 18.5%, higher than the 14% under NPS.
Inflation Adjustment: The pension, family pension, and minimum guaranteed pension are adjusted for inflation based on the All India Consumer Price Index for Industrial Workers (AICPI-IW).
Additional Benefits: Upon retirement, employees receive a lump sum equal to 1/10th of their monthly salary for every six months of service, in addition to their gratuity.
UPS Vs NPS: Key Differences
Check some of the major key differences between Unified Pension Scheme and National Pension System in the table given below:
| Feature | NPS (National Pension System) | UPS (Unified Pension Scheme) |
| Pension Amount | Linked to market performance; varies based on market success. | 50% of average basic salary from the last 12 months before retirement; adjusted for service periods of 10 to 25 years. |
| Family Pension | Determined by total savings and chosen annuity plan. | 60% of the employee's pension is provided to the family. |
| Employee Contribution | 10% of salary | 10% of salary |
| Government Contribution | 14% of salary | 18.5% of salary |
| Inflation Adjustment | Not specified | Adjusted based on All India Consumer Price Index for Industrial Workers (AICPI-IW). |
| Additional Benefits | No lump sum benefits specified | Lump sum payment of 1/10th of monthly salary for every six months of service, plus gratuity. |
| Applicability | Government employees (except armed forces) joining after January 1, 2004; available for private sector employees. | Primarily for government employees, with no specific mention of private sector applicability. |
Central Government employees will benefit from this scheme. It is up to the state government whether they want to adop this pension scheme or not. Maharshtra government has already announced the adoption of this scheme for its employees.
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