Indian government will start a new pension system called the Unified Pension Scheme (UPS), on April 1, 2025, after getting approval from the Union Cabinet. This scheme aims to address the dissatisfaction among government employees with the current National Pension Scheme (NPS) and comes at a time when several important Assembly elections are approaching.
What is the National Pension Scheme (NPS)?
The National Pension Scheme (NPS) was introduced in 2004 to replace the Old Pension Scheme (OPS). It was designed to create a more sustainable pension system by requiring both employees and the government to contribute to a pension fund. However, under the NPS, the pension amount is not guaranteed because it depends on how well the investments in the market perform. This uncertainty has led to dissatisfaction among many government employees, who feel that their benefits are unpredictable and often lower than expected.
What is the Unified Pension Scheme (UPS)?
The Unified Pension Scheme (UPS) is a new pension system that the Indian government will start on April 1, 2025, to address the concerns raised by government employees about the NPS. The UPS aims to combine the benefits of the previous pension systems and provide more financial security to retirees. It simplifies the pension process and ensures that more people can access a reliable pension.
Key Features of the Unified Pension Scheme (UPS)
- Guaranteed Pension: Employees will receive a guaranteed pension that is 50% of their average basic pay from their last year of work. This amount will be adjusted based on how many years they have worked.
- Minimum Pension Guarantee: Retirees who have worked for at least 10 years but less than 25 years will receive a minimum pension of Rs 10,000 per month.
- Family Pension: If the retiree passes away, their immediate family will receive 60% of the last drawn pension to support them.
- Inflation Adjustment: Pensions will be adjusted for inflation, using the All India Consumer Price Index as a reference, to ensure that the value of the pension keeps up with rising living costs.
- Lump Sum Payment at Retirement: In addition to the regular pension, retirees will receive a one-time lump sum payment based on their last drawn salary.
Comparing UPS, NPS, and OPS
- OPS (Old Pension Scheme): This provided a guaranteed pension based on the last salary without requiring the employee to contribute to the pension fund.
- NPS (National Pension Scheme): This requires contributions from both the employee and the government but does not guarantee a specific return, as it depends on market performance.
- UPS (Unified Pension Scheme): This combines elements of both OPS and NPS by offering a guaranteed pension while still requiring employee contributions.
Who Can Get the UPS?
The UPS will be available to all government employees who retired under the NPS since 2004. These employees will have the option to switch to the UPS, but they can do so only once. The scheme may also be extended to state government employees.
Financial Impact
Implementing the UPS will initially cost the government around Rs 6,250 crore, with an additional Rs 800 crore for arrears. The new scheme aims to be financially responsible while addressing the complaints of government employees. Unlike the OPS, which led to unsustainable pension costs, the UPS is designed to balance financial sustainability with the need to provide reliable pensions. The introduction of the UPS is also seen as a strategic move by the government to maintain the support of government employees as elections approach.
