Unified Pension Scheme - Benefits, Eligibility, and Key Features

What is the Unified Pension Scheme?

The Unified Pension Scheme (UPS) is a pension scheme launched by the central government. This scheme will provide central government workers with an increased and steady pension based on their length of service and the most recent basic salary drawn. Government employees will have the option to choose between NPS and UPS. Current NPS subscribers can also choose to transfer to UPS. The new scheme will come into force from April 1, 2025, and is expected to benefit more than 23 lakh Central Government employees.

The contribution of the government under the UPS will rise from the current 14% to 18.5%, resulting in a 19% increase in pensions for employees with a starting salary of Rs.50,000.

Who is Eligible for the Unified Pension Scheme?

Given below are the eligibility criteria for joining the Unified Pension Scheme -

• Employees who have completed a minimum of 10 years of service are eligible to receive a pension under the Unified Pension Scheme. The full benefits of the scheme, as well as the assured pension, will only be available to those who have completed 25 years of service.
• Existing employees under the National Pension Scheme (NPS) or those opting for the Voluntary Retirement Scheme (VRS) will have the option to transfer to UPS or continue with their existing pension schemes. Future employees will also be able to choose UPS; however, if an individual chooses to opt out of UPS, they won’t be able to reverse their decision.

What are the Key Benefits of a Unified Pension Scheme?

Given below are the key benefits of the Unified Pension Scheme -

• Assured Minimum Pension Unified Pension Scheme guarantees a minimum of Rs.10,000 pension per month for employees who retire after completing a minimum of 10 years of service.
• Assured Pension Individuals will receive 50% of their average basic pay over the last 12 months before retirement as a pension at the time of retirement. This benefit will be available to individuals with a minimum of 25 years of service. This benefit will also be extended proportionately to individuals with shorter service periods (i.e., a minimum of 10 years).
• Increased Employer Contribution The government’s contribution under UPS will be 18.5%, as opposed to the existing contribution of 14% under NPS. However, the employee's contribution will remain unchanged.
• Assured Family Pension In case of the death of the pensioner, their family will receive 60% of the pension for which the pensioner was eligible.
• Inflation Adjustment The benefit of the cost inflation index will be available on pensions under UPS. The Dearness Relief (DR) will be tied to the All India Consumer Price Index for Industrial Workers (AICPI-IW) to protect against rising living costs.
• Lump Sum Payment at Superannuation At the time of superannuation, retirees can receive a lump sum payment along with their gratuity amount. This payment will be equal to one-tenth of the monthly emoluments (basic+DA) as of the date of superannuation for every six months of completed service.
• Available to Past Retirees of NPS The scheme will also cover past retirees under the NPS who have already retired. These retirees will receive arrears for the previous period, with interest calculated at Public Provident Fund (PPF) rates.

How to Invest the UPS Fund?

The pension corpus under the UPS will be split into two funds -

• This fund will consist of the employee's contribution of 10% of basic pay and dearness allowance and a matching government contribution of 10%.
• The additional 8.5% contribution by the government will be pooled in a separate corpus.

Employees can choose how and where to invest their individual corpus. However, the assured pension will be based on the default investment pattern as notified by the PFRDA. Employees will be allowed to withdraw upto 60% of their individual pension corpus, thereby reducing their assured pension proportionately.

If the investment chosen by the employee provides a higher annuity than the assured amount, they will receive a higher payout. On the contrary, if the investment made by the employee yields a lower annuity, the government will make up for the difference subject to the benchmark annuity level.

NPS or UPS - What is Better?

As per experts, individuals who yet have 10-20 years before retirement should stick to the existing NPS for equity market returns. Such individuals can have their NPS fund grow substantially over the years. This scheme is also ideal for those who have a higher risk potential and want to generate wealth.

On the other hand, individuals who are close to retirement or are risk averse and seeking assured retirement benefits can switch to UPS as it provides a guaranteed income of 50% of the average basic pay over the last 12 months, which can be a substantial amount for many government employees.

What is the Difference Between NPS, UPS, and OPS?

The following is a tabular representation of the major differences between the three schemes, i.e., National Pension Scheme (NPS), Old Pension Scheme (OPS) and Unified Pension Scheme (UPS) -

Unified Pension Scheme (UPS) offers a guaranteed and stable pension compared to the market-linked National Pension Scheme (NPS). With its assured pension, increased employer contribution, family pension, and inflation adjustments, UPS aims to provide greater financial stability to Central government employees.

If you are an existing NPS holder and a central government employee, you have the option to choose between staying with the existing NPS or switching to UPS. However, you must weigh your options carefully based on your risk tolerance and retirement goals before making a decision.