New Delhi - The Indian government has introduced a new pension initiative, the Unified Pension Scheme (UPS), which will impact approximately 90 lakh central government employees. Announced on August 24, 2024, the UPS combines elements of the old pension scheme (OPS) with the National Pension System (NPS), aiming to address employee dissatisfaction with the NPS and the withdrawal of the OPS. Here are five key aspects of the UPS and how it differs from the OPS:

1. Calculation of Assured Pension:
The UPS modifies the calculation method for pensions. Unlike the OPS, which fixed the pension at 50% of the last drawn basic salary plus dearness allowance (DA), the UPS will calculate pensions as 50% of the average basic salary plus DA from the last 12 months before retirement. This adjustment means that if an employee is promoted to a higher pay scale close to retirement, their pension will be based on the average salary over the last year rather than their final salary.

2. Employee Contributions:
Under the UPS, employees are required to contribute 10% of their basic pay and DA to the pension fund. This mirrors the contribution model of the NPS. In contrast, the OPS did not require employee contributions. The government will increase its contribution to the UPS from the current 14% in the NPS to 18.5%, addressing concerns about the fiscal sustainability of the OPS.

3. Tax Benefits:
The UPS will offer tax benefits similar to those available under the NPS. Currently, employees receive tax deductions for the government’s 14% contribution to the NPS. The government has yet to clarify the tax implications for contributions under the UPS, particularly regarding the combined employee and government contributions.

4. Higher Assured Minimum Pension:
The UPS guarantees a minimum pension of Rs 10,000 per month after at least ten years of service. This is an increase from the current Rs 9,000 per month under the OPS for the same duration of service.

5. Lump Sum Payment Without Pension Reduction:
The UPS introduces a provision for a lump sum payment at retirement, calculated as 1/10th of monthly emoluments (pay + DA) for every six months of service completed. Unlike the OPS, where lump sum payments were made through pension commutation, which reduced the monthly pension, the UPS ensures that the lump sum payment does not impact the assured pension amount.

The new scheme aims to provide a more balanced and sustainable pension solution while addressing past grievances associated with the NPS and OPS. Employees transitioning to the UPS will benefit from a higher assured minimum pension, greater tax benefits, and a lump sum payment option without reducing their monthly pension.

The government’s move to introduce the UPS represents a significant shift in pension policy, reflecting efforts to improve financial security for government employees and ensure long-term sustainability.