Union Cabinet Approves Unified Pension Scheme for Employees

August 26, 2024

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 NPS began in 2004, replacing the Old Pension Scheme (OPS). It was designed to create a more sustainable pension system. However, under NPS, pensions are not guaranteed and depend on how well investments in the market perform. Employees contribute to this pension alongside the government, but many are unhappy because the benefits are unpredictable and often lower than expected.

What is the Unified Pension Scheme (UPS)?

The Unified Pension Scheme (UPS) is a pension system in India designed to provide financial security for citizens. Launched in 2019, it combines various existing pension schemes into one unified framework to simplify the process and ensure wider coverage. The UPS is linked to an individual’s Aadhaar number for easy identity verification and enrollment. Under this scheme, both employees and employers contribute to the pension fund, and the government also contributes. It promotes financial inclusion by encouraging digital transactions, making it easier for more people to participate in the economic system.

Key Features of the Unified Pension Scheme (UPS)

Guaranteed Pension: Employees will receive 50% of their average basic pay from their last year of work, with adjustments based on how long they have served.

Minimum Pension Guarantee: Retirees with less than 25 years of service will get at least Rs 10,000 per month as a pension, provided they have worked for at least 10 years.

Family Pension: If the retiree passes away, their immediate family will receive 60% of the last drawn pension.

Inflation Adjustment: Pensions will be adjusted for inflation, based on the All India Consumer Price Index.

Lump Sum Payment at Retirement: Along with the gratuity, retirees will receive a one-time payment calculated from their last drawn pay.

Comparing UPS, NPS, and OPS

OPS: Provides a guaranteed pension based on the last salary, without needing the employee to contribute.

NPS: Funded by both the employee and the government, but does not guarantee returns and depends on the market.

UPS: Combines features of both OPS and NPS, offering guaranteed pensions while still requiring employee contributions.

Who Can Get the UPS?

The UPS is available to all government employees who retired under the NPS since 2004. Employees can choose to switch to UPS only once, and it may also be extended to state government employees.

Financial Impact

Implementing the UPS will cost the government around Rs 6,250 crore initially, plus an additional Rs 800 crore for arrears. The new scheme is designed to be financially responsible while addressing employee complaints, unlike the OPS, which had led to unsustainable pension costs. The introduction of UPS is a major political move, intended to maintain the support of government employees as elections approach. Even though some states may face financial challenges, they might still adopt the UPS due to the influence of the central government’s decision and the electoral context.

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