What is the Unified Pension Scheme (UPS)?
The Unified Pension Scheme (UPS) was introduced by the Central Government on 24 August 2024 and is scheduled to be implemented from 1 April 2025. This new scheme is designed to offer financial security, stability, and dignity for government employees post-retirement. The scheme will primarily benefit 23 lakh Central Government employees, with the potential to extend to over 90 lakh employees nationwide, including those in state governments. The Unified Pension Scheme (UPS) is based on the recommendations of the T. V. Somanathan Committee (2023), which was established in response to persistent demands for the reintroduction of the Old Pension Scheme (OPS).
The UPS scheme is a shift from the current National Pension System (NPS), allowing employees to either continue with the NPS or switch to the UPS. However, employees must be aware that the decision to switch to the UPS scheme is final and cannot be reversed.
Key Highlights of the Unified Pension Scheme (UPS)
- Eligibility for UPS:
- Employees with at least 10 years of service are eligible for a fixed pension amount.
- Employees who have completed 25 years of service are entitled to receive a 50.00% of their average basic pay for last 12 months as a pension.
- The scheme will be applied initially for Central Government employees, who are currently under the National Pension System (NPS) or those opting for Voluntary Retirement Scheme (VRS) under NPS.
- Minimum Pension Amount:
- The UPS guarantees a minimum pension of Rs. 10,000 per month for employees who retire after completing at least 10 years of service.
- Assured Pension:
- Employees with at least 25 years of service will receive a pension of 50% of their average basic pay over the last 12 months before retirement.
- Employees with shorter service periods (10-25 years) will receive proportionate pension benefits.
- Government Contribution:
- The government will contribute 18.5% of the employee’s basic salary (including Dearness Allowance) to the pension fund.
- Employees are required to contribute 10% of their basic salary to the pension fund.
- Assured Family Pension:
- If a retiree passes away, 60% of the pension will be provided to their spouse, ensuring continued financial support for the family.
- Inflation Indexation:
- The scheme includes inflation indexation, meaning the Dearness Relief (DR) will be adjusted based on the All India Consumer Price Index for Industrial Workers (AICPI-IW), protecting pensioners from inflation.
- Lump Sum Payment:
- Along with gratuity, retirees will receive a lump sum payment equal to one-tenth of their monthly emoluments (pay + DA) for every six months of completed service. This amount will not reduce the assured pension.
What is the difference between NPS and UPS?
| Particulars | Unified Pension Scheme (UPS) | National Pension System (NPS) |
|---|---|---|
| Employer’s Contribution | 18.5% of basic salary is contributed by the employer to the pension fund. | 14% of basic salary is contributed by the employer to the pension fund. |
| Pension Amount | Guaranteed 50% of the average basic pay over the last 12 months before retirement for employees with 25 years of service. | No guaranteed pension. The pension amount depends on investment returns and the total corpus accumulated. |
| Family Pension | Provides 60% of the retiree’s last pension to the family in case of the retiree’s death. | Family pension depends on the accumulated corpus and the chosen annuity plan. |
| Minimum Pension Amount | Guarantees a minimum pension of Rs. 10,000/month for employees retiring after 10 years of service. | Pension amount depends on market-linked investments with no fixed minimum guarantee. |
| Lump Sum Amount | Offers a lump sum at superannuation calculated as 1/10th of the last drawn monthly pay for every six months of completed service. | Employees can withdraw up to 60% of their accumulated corpus as a lump sum upon retirement. |
| Inflation Protection | Includes inflation protection with adjustments based on the All India Consumer Price Index for Industrial Workers (AICPI-IW). | No provision for automatic inflation adjustments or DA increments. |
Key Differences Between OPS and UPS
- Old Pension Scheme (OPS): Provides a pension of 50% of the last drawn salary, with no employee contribution. It is applicable to employees who served before the introduction of NPS.
- Unified Pension Scheme (UPS): Provides a pension of 50% of the last drawn salary for employees with at least 25 years of service. For those with 10-25 years, a proportionate pension is provided. Employees under UPS must contribute 10% of their basic salary, while the government contributes 18.5%.
How is the Unified Pension Scheme (UPS) Pension Calculated?
The pension under the Unified Pension Scheme (UPS) is calculated based on the employee’s service duration and average basic pay. Here are the key points:
- For Employees with 25+ Years of Service:
- Employees with at least 25 years of service will receive a guaranteed pension equal to 50% of their average basic pay over the last 12 months before retirement.
- Minimum Pension:
- A minimum pension of ₹10,000 per month is guaranteed for employees who have completed at least 10 years of service.
- Proportionate Pension:
- Employees with 10 to 24 years of service will receive a proportionate pension based on their total years of service.
- Family Pension:
- In the event of the pensioner’s demise, the family will receive a family pension equal to 60% of the pension amount that the retiree was receiving immediately before their death.
The UPS ensures financial stability for retirees and their families, offering both a guaranteed pension and family support.
Illustration on Unified Pension Scheme (UPS) Calculation
To help understand how the Unified Pension Scheme (UPS) computes monthly pensions, here are three examples based on different years of service:
Example 1: Employee with 25 Years of Service
Employee: Mr. X
Basic Pay: ₹6.00 lakh per annum
Average Monthly Basic Pay: ₹6,00,000.00 ÷ 12 = ₹50,000.00
Years of Service: 25
Since Mr. X has 25 years of service, his pension will be 50% of his average monthly basic pay.
Calculation:
₹50,000.00 × 50/100 = ₹25,000.00 per month
Thus, Mr. X will receive a monthly pension of ₹25,000.00+applicable DA
Example 2: Employee with 15 Years of Service
Employee: Mr. Y
Basic Pay: ₹6.00 lakh per annum
Average Monthly Basic Pay: ₹6,00,000.00 ÷ 12 = ₹50,000.00
Years of Service: 15
Since Mr. Y has less than 25 years of service, his pension will be calculated on a proportionate basis.
Calculation:
₹50,000.00 × (50/100) × (15/25) = ₹15,000.00 per month
Thus, Mr. Y will receive a monthly pension of ₹15,000.00+applicable DA
Example 3: Employee with 10 Years of Service
Employee: Mr. C
Basic Pay: ₹4.00 lakh per annum
Average Monthly Basic Pay: ₹4,00,000.00 ÷ 12 = ₹33,333.00
Years of Service: 10
Since Mr. C has completed only 10 years of service, his pension will also be calculated on a proportionate basis, but the minimum pension of ₹10,000.00 applies if the calculated amount is less than ₹10,000.00
Calculation:
₹33,333.00 × (50/100) × (10/25) = ₹6,666.60
However, as per UPS rules, the minimum pension is ₹10,000.00
Thus, Mr. C will receive a monthly pension of ₹10,000.00+applicable DA
Lump Sum Payment under the Unified Pension Scheme (UPS)
Employees covered under the Unified Pension Scheme (UPS) are eligible for a lump sum payment upon superannuation, voluntary retirement (VR), or retirement at the age of 60 years, provided they have completed at least 25 years of qualifying service or retire at the prescribed age.
Lump Sum Payment Formula
The formula for calculating the lump sum payment is:
Lump Sum Payment=(1/10×Total Emoluments)×L
Where:
- Total Emoluments = Basic Pay + Dearness Allowance (DA)
- L = Number of six-monthly completed years of service, based on the number of months an individual contributed to the pension corpus
A lump sum payment is calculated at 10% of monthly emoluments (basic pay + DA) for every six months of completed qualifying service. This payment will not impact the assured pension amount and is paid in addition to the pension.
Example Calculation
Let’s calculate the lump sum payment using the following assumptions:
- Basic Pay at the time of superannuation: ₹30,000.00
- Dearness Allowance (DA): 53% of Basic Pay = ₹15,900.00
- Total Emoluments = ₹30,000.00 + ₹15900.00 = ₹45,900.00
- Total Service 25 years L=25 years =50 (periods of 6 months)
Using the formula:
Lump Sum Payment=(1/10×45,900.00)×50=₹2,29,500.00
Lump Sum Payment for Different Service Periods
| 1/10 of Emoluments (₹) | Length of Service (Months of Contribution) | Number of Completed Six Months (L) | Lump Sum Amount (₹) |
|---|---|---|---|
| ₹4590.00 | 10 years (120 months) | 20 | ₹ 91,800.00 |
| ₹4590.00 | 15 years (180 months) | 30 | ₹ 1,37,700.00 |
| ₹4590.00 | 20 years (240 months) | 40 | ₹ 1,83,600.00 |
| ₹4590.00 | 25 years (300 months) | 50 | ₹ 2,29,500.00 |
| ₹4590.00 | 30 years (360 months) | 60 | ₹ 2,75,400.00 |
| ₹4590.00 | 35 years (420 months) | 70 | ₹ 3,21,300.00 |
Important Notes
- Employees with a service length of less than 10 years are not eligible for a lump sum payment since UPS is not applicable to them.
- The lump sum amount increases proportionally with the length of completed service.
- This payment is a significant financial benefit to provide retirees with an additional corpus for post-retirement planning.
By offering a lump sum benefit alongside assured pensions, the Unified Pension Scheme ensures greater financial security for retirees, making it an essential tool for long-term retirement planning.
Conclusion
The Unified Pension Scheme (UPS) aims to provide financial security and stability to government employees after retirement. With assured pensions, family support, and government contributions, the UPS scheme is designed to offer better post-retirement benefits compared to the current NPS. As the scheme is set to be implemented from April 2025, government employees are encouraged to assess whether switching to the UPS is beneficial for their future.
Frequently Asked Questions (FAQs)
1. When will the UPS scheme come into effect?
The UPS scheme will be implemented from 1 April 2025.
2. What are the key features of the UPS?
The UPS includes:
- Assured pension (50% of average basic pay after 25 years of service)
- Assured family pension (60% of pension for spouse)
- Minimum pension of Rs. 10,000 for employees with 10+ years of service
- Government contribution of 18.5% to the pension fund
3. Is UPS better than NPS?
UPS provides a guaranteed pension and is ideal for employees who prefer security over investment risk. NPS offers higher potential returns but depends on market-linked investments.
4. What is the difference between OPS and UPS?
OPS offers a 50% pension of the last drawn salary without employee contributions, while UPS also provides a 50% pension for those with 25 years of service but requires employee contributions.
5. Is UPS applicable for private employees?
Currently, the UPS scheme is only applicable to government employees. Private employees are not covered under UPS.
6. Does UPS offer a lump sum pension?
Yes, retirees will receive a lump sum payment along with gratuity, which is one-tenth of monthly emoluments for every six months of service.
7. Can state governments adopt UPS?
Yes, state governments can choose to implement the UPS. Maharashtra was the first state to implement it for state government employees on 25 August 2024. 5 Important Features of the Unified Pension Scheme
8. What are 5 Important Features of the Unified Pension Scheme?
The Unified Pension Scheme (UPS) has introduced significant benefits to ensure financial security and stability for government employees post-retirement. Here are five standout features of the UPS that make it an exceptional choice for future retirees:
1. Assured Pension
One of the most notable features of UPS is the guaranteed pension it offers to employees who have served for at least 25 years. These retirees receive 50% of their average basic pay from the last 12 months of service as their pension.
For employees with a service period between 10 and 25 years, the scheme provides a proportionate pension based on their tenure. This assurance ensures a stable income throughout retirement, offering peace of mind and financial security.
2. Assured Minimum Pension
The UPS guarantees a minimum pension of ₹10,000 per month for employees who retire after serving at least 10 years. This feature is especially beneficial for employees who may not have completed 25 years of service, ensuring they still receive adequate financial support post-retirement.
3. Assured Family Pension
In the unfortunate event of a pensioner’s demise, the UPS provides continued financial support to the retiree’s family. Surviving family members, including the spouse, are guaranteed 60% of the pension amount the retiree was receiving.
This feature ensures that the pensioner’s family is not left financially vulnerable and can maintain a stable standard of living.
4. Inflation Indexation
One of the standout features of the UPS is its protection against inflation. Pensions under this scheme are adjusted based on the All India Consumer Price Index for Industrial Workers (AICPI-IW).
This inflation-indexation mechanism helps retirees maintain their purchasing power and ensures their income keeps pace with rising living costs, safeguarding their financial well-being throughout retirement.
5. Lump Sum on Superannuation
The UPS provides a lump-sum payout upon retirement, which is calculated as one-tenth of the last drawn monthly emoluments for every six months of service.
Additionally, retirees are entitled to gratuity at the time of superannuation. The lump sum is independent of the pension corpus, ensuring that retirees start their retirement with a strong financial cushion while preserving their monthly pension for ongoing needs.
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