On August 24, 2024, the Central Government unveiled the Unified Pension Scheme (UPS), set to launch on April 1, 2025. Designed to provide financial stability and security to government employees, this scheme is a significant shift from the current National Pension System (NPS).
Key Features of the UPS
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Employee Contributions and Benefits
Under UPS, employees will contribute 10% of their basic salary plus dearness allowance, while the government will contribute 18.5%. Employees with at least 25 years of service will receive 50% of their average basic pay from the last 12 months as their pension. Those retiring after a minimum of 10 years will receive a guaranteed monthly pension of Rs. 10,000.
Minimum Pension Guarantee
UPS ensures a minimum pension of Rs. 10,000 per month for employees retiring with at least 10 years of service. This is a notable improvement from NPS, which does not guarantee a fixed pension amount.
Family Pension and Inflation Protection
In the event of a retiree’s death, UPS guarantees that 60% of the pension amount will be provided to the spouse. Additionally, pensions under UPS will be adjusted for inflation based on the All India Consumer Price Index for Industrial Workers (AICPI-IW).
UPS vs. NPS: A Comparative Overview
Contribution and Pension Amounts
UPS offers a higher employer contribution of 18.5% compared to NPS’s 14%. Unlike NPS, which depends on investment returns and does not guarantee a fixed pension amount, UPS guarantees a pension based on the employee’s average basic pay and provides minimum pension guarantees.
Lump Sum Payments and Inflation Adjustments
UPS provides a lump sum payment calculated as one-tenth of the last drawn pay for every six months of completed service. NPS allows employees to withdraw up to 60% of their corpus as a lump sum but lacks automatic inflation protection, which UPS includes through Dearness Relief (DR) adjustments.
Adoption and Implementation
Maharashtra has already adopted UPS for state employees, and if other states follow suit, over 90 lakh government employees could benefit. Employees currently under NPS have the option to switch to UPS, with the decision being final.
Conclusion
The Unified Pension Scheme represents a significant enhancement in retirement benefits for government employees, offering guaranteed pensions, inflation protection, and a more secure retirement plan compared to the National Pension System.
