The Central Government has approved the Unified Pension Scheme (UPS) as a replacement for the New Pension Scheme (NPS) for central employees. This announcement was made by Union Minister Ashwini Vaishnaw during a press conference on August 24. The UPS will be implemented from April 1, 2025, benefiting approximately 2.3 million central government employees.
Under this scheme, employees will have the option to choose between the UPS and NPS for their pension plan. State governments can also choose to adopt this scheme, potentially increasing the number of beneficiaries under UPS to 9 million.
5 Key Features of UPS: Understanding the New Pension Scheme’s Benefits
- Guaranteed Pension: Under the UPS, employees will receive an assured pension equivalent to 50% of the average of their basic salary from the 12 months prior to retirement. This pension will only be available to employees who have completed 25 years of service. Those with less than 25 years but more than 10 years of service will receive a reduced pension.
- Assured Family Pension: In case of an employee’s death, the family will receive 60% of the pension the employee would have received upon retirement. This family pension provides significant financial security for the family.
- Assured Minimum Pension: Even if an employee has less than 10 years of service, they will still receive a minimum pension of ₹10,000 per month. Considering current inflation, this amount will be approximately ₹15,000.
- Dearness Relief (DR): All pensions under this scheme will be adjusted based on inflation, with DR (Dearness Relief) being paid according to the All India Consumer Price Index for Industrial Workers (AICPI-W), protecting pensioners from inflation.
- Lump Sum Payment: Employees will also receive a lump sum amount equivalent to their salary and allowances from the last six months of service, which will be paid out at the time of retirement, helping to secure their future.
Differences Between UPS and NPS
According to TV Somanathan, the OSD of the Central Secretariat, the UPS is a fully contributory funded scheme where the employee contributes 10% of their basic salary, while the government contributes 18.5%. The UPS combines the benefits of both the Old Pension Scheme (OPS) and the NPS, providing employees with a stable and secure pension.
- OPS (Old Pension Scheme): This was an unfunded scheme where employees did not contribute towards their pension, and the pension was paid directly from government coffers.
- NPS (New Pension Scheme): Under NPS, employees contribute 10% of their basic salary, and the government contributes 14%. However, the government’s contribution under UPS has been increased to 18.5%.
Key Differences Between OPS and NPS
- Basis of Pension:
- OPS: Under OPS, employees receive a pension equal to 50% of their last drawn salary, with no contribution required from them. The pension is paid from the government’s treasury.
- NPS: In NPS, 10% of an employee’s basic salary and DA (Dearness Allowance) is deducted for the pension fund. Since NPS is market-based, it does not guarantee a fixed pension after retirement.
- Gratuity and Death Benefits:
- OPS: Employees receive gratuity up to ₹20 lakh, and in the event of death, the family receives the pension amount, ensuring financial security. The General Provident Fund (GPF) is also available.
- NPS: In NPS, employees need to invest 40% of their NPS fund after retirement to receive a pension. Gratuity and death benefits are not as guaranteed as in OPS.
- Dearness Allowance (DA):
- OPS: DA is provided under OPS, adjusted every six months to protect pensioners from inflation.
- NPS: There is no provision for DA in NPS, exposing pensioners to inflation risks.
- Tax and Investment:
- OPS: Pensioners are exempt from tax since the pension is directly paid by the government.
- NPS: NPS investments are subject to taxes, depending on the pensioner’s income.
Impact and Cost of UPS
TV Somanathan stated that employees who retired under NPS from 2004 to March 2025 will also benefit from the UPS. The payment will be adjusted based on the funds already received.
The government’s additional contribution under UPS will result in an extra expenditure of approximately ₹6,250 crores in the first year, with the cost expected to increase annually.
Prime Minister’s Meeting Before Approving UPS
Before the Cabinet meeting, Prime Minister Narendra Modi held a discussion with central employees’ leaders regarding OPS, NPS, and UPS. This meeting was significant as it involved members of the National Council (JCM), and the 8th Pay Commission was also discussed.
AIDEF’s Discontent and Demand for OPS Restoration
The All India Defence Employees Federation (AIDEF) expressed dissatisfaction with UPS, stating that they only want the restoration of OPS and are not satisfied with UPS. AIDEF had planned an indefinite strike on May 1, 2024, but postponed it after the government promised discussions.
The Future of UPS
The Unified Pension Scheme (UPS) promises central employees a secure and stable future in terms of pensions. It remains to be seen how well UPS meets the employees’ needs and whether it can serve as a sustainable solution for pension reforms.
Joint Consultative Machinery (JCM)
The Joint Consultative Machinery (JCM) is a platform that facilitates dialogue between the central government and its employees to ensure the peaceful resolution of disputes. Established in 1966, the JCM’s purpose is to discuss and coordinate on various issues to ensure that employee grievances are addressed in a timely and effective manner. It is a non-statutory body comprising representatives from various central government departments, who play a crucial role in voicing employees’ concerns and helping resolve their issues.