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Unified Pension Scheme

Last updated on October 14th, 2024 Posted on August 27, 2024 by NEXT IAS Current Affairs Team  1894

Syllabus: GS2/Government Policy and Intervention

Context

  • Recently, the Union Cabinet, chaired by the Prime Minister, approved the Unified Pension Scheme (UPS) by replacing the National Pension System (NPS).

About

  • It is based on the recommendations of T. V. Somanathan Committee (2023), will be effective from April 1, 2025.
  • The UPS proposes to amalgamate advantages of both Old Pension Scheme (OPS) and New Pension Scheme (NPS).
  • It represents a forward-looking approach to retirement planning in India, aiming to provide a secure and sustainable pension system for all eligible employees.
  • It aims to provide long-term financial security to government employees while maintaining flexibility and choice.

Key Features of the Unified Pension Scheme (UPS)

  • Guaranteed Pension: Under the UPS, eligible employees are assured a pension equal to 50% of their average basic pay drawn over the last 12 months prior to superannuation.
    • For service periods between 10 and 25 years, the pension will be proportional.
  • Minimum Qualifying Service: Employees with a minimum qualifying service of 25 years will receive the full assured pension.
    • In case of an employee’s demise, their family will receive an assured pension equal to 60% of the employee’s pension before their demise.
Unified Pension Scheme
  • Assured Minimum Pension: Upon superannuation after a minimum of 10 years of service, employees will receive an assured minimum pension of Rs 10,000 per month. It ensures a safety net for retirees.
    • The UPS promises central government employees who have completed at least 25 years of service a guaranteed pension.
    • It is calculated as half of their average basic salary over the 12 months preceding superannuation.
  • Inflation Indexation: The UPS applies inflation indexation to the assured pension, assured family pension, and assured minimum pension.
    • In the form of Dearness Relief based on All India Consumer Price Index for Industrial Workers (AICPI-IW), similar to service employees.

Read our detailed article on Inflation: Meaning, Types, Measures, Effects & More

  • Lump Sum Payment: In addition to gratuity, 1/10th of monthly salary+ Dearness Allowance for every completed six months of service. 
differences between old vs national pension scheme
  • Financial Contributions: Employees choosing the UPS will continue to contribute 10% of their salary.
    • The government’s contribution will increase from 14% to 18.5%.
    • It ensures that employees do not face any additional financial burden.

Choice Between UPS and NPS

  • Central government employees have the option to choose between the UPS and the National Pension Scheme (NPS).
  • Unlike the UPS, the NPS is market-linked.
Similarities to the Old Pension Scheme (OPS)
– The UPS shares similarities with the old pension scheme in terms of benefits. However, it differs significantly in its funding mechanism.
– Unlike the OPS, which was a pay-as-you-go program, the UPS is fully funded each year from the budget and absorbed into it. This approach prevents future generations from bearing the burden of pension payments.

Choice for NPS Subscribers
– Employees currently under the National Pension System (NPS) have the option to shift to the UPS.
– NPS, introduced in 2004, is a defined contribution scheme where employees accumulate a retirement corpus based on their contributions.
– UPS provides an alternative for those seeking a more assured pension.

Source: PIB

 
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