Unified Pension Scheme

January 27, 2025

The Unified Pension Scheme (UPS) was officially notified on January 24, 2025. This scheme offers government employees a new choice for retirement benefits. It replaces the National Pension System (NPS), which did not guarantee pensions for employees joining after January 1, 2004. The UPS promises assured benefits, addressing concerns raised by government workers.

About UPS

The UPS guarantees a pension equivalent to 50% of the last drawn salary.
This pension is subject to periodic dearness relief adjustments based on inflation.
Additionally, it includes a family pension of 60% upon the employee’s death and a lump-sum superannuation payout at retirement.

Key Features of the UPS

Under the UPS, employees can expect a minimum pension of ₹10,000 per month after completing at least 10 years of service.
The scheme is optional for those already under the NPS.
Employees who opt for the UPS will have their retirement corpus divided into two funds – an individual corpus and a pool corpus funded by the government.

Contribution Structure

Employees contribute 10% of their basic pay and dearness allowance.
The government matches this contribution.
An additional estimated 8.5% of basic pay will also be contributed by the Centre to support the assured payouts.
This structure aims to ensure sufficient funds for pension payments.

Conditions for Full Pension

To receive the full 50% pension, employees must meet specific criteria. The calculation is based on the average of the last 12 months of salary, the total months of service, and the retirement corpus. Employees must complete 300 months of service and maintain their individual corpus at a benchmark level.

Calculation of Assured Payout

The formula for calculating the assured payout is – Assured payout = (P/2) x (Q/300) x (IC/BC), where P is the average of the last 12 months’ basic pay, Q is the number of months in service, IC is the individual corpus, and BC is the benchmark corpus. If Q exceeds 300, it will be capped at 300.

Provisions for Voluntary Retirement

For employees opting for voluntary retirement after 25 years of service, the assured payout will begin when they reach the superannuation age of 60. This ensures a steady income post-retirement.

Future Implications

The UPS aims to reassure government employees by restoring pension benefits that were previously guaranteed. It addresses the demand for a more secure retirement plan, potentially influencing future policies regarding government employee benefits.

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