The National Democratic Alliance (NDA) government, led by Prime Minister Narendra Modi, had introduced a new pension program called the Unified Pension Scheme (UPS). The scheme was announced recently and is expected to benefit approximately 23 lakh government employees. 

The Unified Pension Scheme (UPS) will be implemented on April 1, 2025, and will offer government employees a choice between continuing with the existing National Pension Scheme (NPS) or switching to the new scheme. 

Overview of the Unified Pension Scheme

The Unified Pension Scheme introduces a fixed pension system, unlike the NPS, which doesn’t guarantee a specific pension amount. The UPS includes several important features: 

Safe and assured pension 

The employees who have served for a minimum of 25 years will receive a pension equal to 50% of their basic pay from the last 12 months before retirement. For those with shorter service, the pension will be based on the years of service. 

Assured Family Pension 

If an employee passes away, their family will receive 60% of the pension the employee was receiving. It ensures financial support for the family. 

Assured Minimum Pension 

Retirees who have worked for at least 10 years will receive a minimum pension of Rs 10,000 per month, regardless of how long they have served. 

Inflation Indexation 

The UPS includes provisions to adjust pensions based on inflation. It ensures that the value of the pension maintains its purchasing power over time. 

Gratuity 

In addition to the pension, retirees will receive a lump-sum gratuity payment. This amount will be calculated as the one-tenth of the monthly salary (including pay and dearness allowance) for every completed six months of service. 

Structure of the old National Pension Scheme 

Under the new National Pension Scheme, the pension amount is based on the total savings in the pension fund and the chosen annuity plan at retirement. The NPS has a two-tier account structure: 

Tier-1 account structure of NPS: 

The Tier-1 structure is a mandatory pension account that provides tax benefits for the employees. 

Tier-2 account structure of NPS: 

The Tier-2 account structure is an optional investment account linked to the Tier-1 account, providing flexibility for withdrawals to the employees. 

In contrast, the UPS guarantees a set pension amount and additional benefits like family pensions, gratuity and ensuring a secure and predictable retirement income. 

Who is eligible for the UPS, and how can they implement it? 

The new UPS will be for all central government employees who retire on or after April 1, 2025. Employees currently under the NPS will have the option to switch and continue the existing plan.

Those who have served for at least 25 years will get an assured pension. While employees with a minimum of 10 years of service will receive a guaranteed minimum pension of Rs 10,000. 

PM Narendra Modi highlighted the benefits of UPS 

Prime Minister Narendra Modi stressed on the significance of the UPS on social media, emphasizing its role in ensuring dignity and financial security for government employees. 

The scheme has been met with positive reactions from BJP-ruled states. While some other regions have called for a return to the old pension system. 

The Finance Ministry has previously formed a committee led by Finance Secretary TV Somanathan to examine the current pension plans. The UPS was created to address the concerns faced by government employees. It also offers a more reliable pension system compared to the NPS. 

Comparison of Unified Pension Scheme (UPS) With Old Pension Scheme (OPS) 

The Old Pension Scheme (OPS), also known as the Defined Benefit Pension System (DBPS). It is calculated pension based on the last-drawn salary of the employee. Under OPS, retirees will receive half of their last-drawn salary as pension.

In contrast, the NPS or Defined Contribution Pension System (DCPS) involves the contributions of both the employer and the employee, with the final pension amount based on the total savings accumulated. 

The Unified Pension Scheme (UPS) aims to offer a more stable and predictable pension for government employees.