2024-08-29 04:15:39
New Delhi: The central government has approved a new pension scheme for government employees. Its name is Unified Pension Scheme (UPS). Finance Minister Nirmala Sitharaman said on Tuesday that this scheme is an attempt to improve the existing National Pension System (NPS). Under UPS, government employees will get 50% of their last salary as pension. This scheme will come into effect from April 1, 2025. Initially, about 2,30,000 central employees will get its benefit. If state governments also adopt this scheme, then the number of beneficiaries can increase to 9,00,000. Finance Minister Sitharaman told Business Today that UPS is not mandatory for any state. States can compare UPS with OPS and NPS and then take a decision. Sitharaman said that after the implementation of UPS in 2025, NPS can be canceled by default. He said that this scheme is currently only for central government employees.
What is the purpose of Unified Pension Scheme?
Under UPS, government employees will contribute 10% of their basic salary and dearness allowance (DA), while the government will contribute 18.5%. Apart from this, an additional pool corpus will also be created from the additional 8.5% given by the government. As per UPS rules, employees are assured of a pension equal to 50% of their average basic salary of the last 12 months.
The UPS aims to create a comprehensive and uniform retirement plan by combining the benefits of the Old Pension Scheme (OPS) and the New Pension Scheme (NPS). The scheme is designed as a hybrid model, providing fixed benefits similar to OPS and also incorporating a contribution-based factor like NPS.
Highlighting the financial responsibility of UPS, former Finance Secretary T V Somanathan said, “It is fiscally prudent because we have to absorb it within our budgetary fiscal deficit in the Union Budget every year.” He said UPS is fully funded and contributory. This ensures that there is no burden on future governments.
This new scheme provides employees with the option to either remain enrolled in the National Pension Scheme (NPS) or switch to UPS. It is important to note that the decision taken by employees regarding their choice of pension scheme cannot be changed. NPS is currently applicable to all government officials, except those in the armed forces and those who have entered Central Government service on or after 1 January 2004.
Some special features of UPS
* If employees work for 25 years or more under UPS, they will get 50% of their average salary of the last 12 months as pension, which will be adjusted according to inflation through dearness allowance.
* Employee contribution will remain the same as under UPS. However, the government will increase its contribution from 14% to 18.5%.
* Under UPS, a lump sum payment along with gratuity will be given on retirement. This will be 1/10th of the monthly salary (pay + DA) on the date of retirement for every six months of completed service. This payment will not reduce the assured pension amount.
* Retirees under UPS will receive 50% of their average basic pay in the last 12 months prior to retirement for a minimum of 25 years of service.
* Pension for shorter service period will be proportionate, with a minimum of 10 years of service. A pension of Rs 10,000 per month will be given after a minimum of 10 years of service.
* Pension under UPS will be indexed to inflation. Like serving employees, dearness relief will be based on the All India Consumer Price Index for Industrial Workers (AICPI-IW).
* In case of death of the pensioner, his family will receive 60% of the pension.
* Unlike OPS, UPS is based on actuarial calculations to assess the liabilities that arise. An actuarial valuation will be done every three years.
*The provisions of UPS will apply to past NPS retirees who have already retired. Arrears of past periods will be paid with interest at PPF rates.
*The provisions of UPS will apply to past NPS retirees who have already retired. Arrears of past periods will be paid with interest at PPF rates.
* One thing to note is that once one opts for OPS, one cannot go back to NPS. According to the government, existing NPS/VRS employees and future employees will have the option to join UPS. However, once exercised, the choice will be final.
Which option is better?
The central government has said that more than 99% of employees will be better off if they move to the new scheme. Under NPS, a portion of the funds are to be invested in annuities after retirement. Since annuity rates are low in India, a substantial amount of money is required to get a 50% return on investment. The guaranteed 50% pension under UPS is a safer option.