What is the new Unified Pension Scheme and how is it different from NPS? | Financial News

Additionally, employees will have the option to choose between the existing National Pension System (NPS) and the new UPS.

Vaishnaw also mentioned that a committee had been constituted at the Centre and held 100 meetings with key organisations, including the Reserve Bank of India (RBI) and the World Bank, to finalise the framework for the programme.

Earlier on Sunday (August 25), Business Standard reported that the Department of Expenditure (DoE) in the Ministry of Finance is likely to release an operational framework for the implementation of UPS. The framework will lay down procedures for various situations, such as for those who retired under the NPS and made partial withdrawals from their pension.

PM Modi praised UPS, emphasising that it will provide dignity and financial security to government employees. In a post on ‘X’, he said, “We are proud of the hard work of all government employees who contribute significantly to the progress of the country. The Unified Pension Scheme provides dignity and financial security to government employees, which is in line with our commitment to ensure their well-being and a secure future.”

What is the Unified Pension Program?

UPS aims to balance fiscal policy with employee benefits. It combines a defined pension similar to the Old Pension Scheme (OPS) with the contributory nature of the NPS.

Guaranteed pension: Government employees with at least 25 years of service will receive a guaranteed pension equal to 50% of their average basic salary in the last 12 months before retirement. Those with less service will receive a pension proportional to their service, with the minimum qualifying service being set at 10 years.

Guaranteed family pension: In the event of the accidental death of an employee, his or her spouse will receive a survivor’s pension equal to 60 percent of the pension the employee was receiving.

Guaranteed minimum pension: Employees with a minimum service period of 10 years will be entitled to a minimum pension of Rs 10,000 per month after retirement.

Inflation indexation: Both the guaranteed pension and the survivors’ pension will be adjusted for inflation, which will help maintain their price growth rate.

Cost relief: UPS pensioners will get cost relief based on the All India Consumer Price Index for Industrial Employees (AICPI-IW), just like existing employees.

Lump sum superannuation payment: In addition to the gratuity, employees will receive a lump sum payment on retirement equal to 1/10 of their monthly emoluments (including salary and Dearness Allowance) for every six months of service. This payment will not reduce the amount of the guaranteed pension.

Similarities Between UPS and the Old Pension Plan

In recent years, political opposition parties have capitalized on the discontent among government employees regarding the National Pension Scheme (NPS), commonly referred to as the new pension scheme. This discontent led to the Congress-led governments in Himachal Pradesh (2023), Rajasthan and Chhattisgarh (2022), as well as the AAP government in Punjab (2022), reinstating the Old Pension Scheme (OPS).

OPS provided Central and State government employees with a pension fixed at 50 per cent of their last drawn basic salary, similar to the proposed UPS. Additionally, Dearness Relief, calculated as a percentage of the basic salary, was included to compensate for the rising cost of living.

How is UPS different from the new pension program?

The NPS, introduced on January 1, 2004 by the Atal Bihari Vajpayee government, replaced the OPS to address its fiscal instability. The NPS differs from the OPS in two key respects: it eliminates the guaranteed pension and is financed by contributions from both the employee and the government.

Employees pay 10 per cent of their basic salary and Dearness Allowance, while the government pays 14 per cent (currently proposed to be increased to 18.5 per cent). Under NPS, employees can choose from a range of schemes, from low to high risk, managed by nine pension fund managers, including those sponsored by SBI, LIC and HDFC.

Government employees oppose NPS because it offers lower guaranteed returns and requires employee contributions, unlike OPS. Persistent demands for OPS led to the formation of a committee under Finance Secretary T. V. Somanathan in 2023, which held over 100 meetings to come up with recommendations that resulted in UPS.

What are the conditions for participation in the unified pension scheme?

The UPS applies to all those who retired under NPS since 2004. Somanathan said the arrears of these retirees will be adjusted to what they have already drawn under NPS. Employees can opt to remain under NPS, but it is unlikely to be beneficial. Once selected, it cannot be changed.

Currently, the program applies to central government employees, although individual states may also adopt it.

Will UPS be more fiscally prudent for government coffers?

The Indian Express quoted Finance Secretary TV Somanathan as saying that the arrears would cost the exchequer Rs 800 crore in the first year of the scheme and the total outlay would be around Rs 6,250 crore.

“First, it remains in the same architecture of a contributory program. That’s the fundamental difference. OPS is an unfunded, non-contributory program. This (UPS) is a funded contributory program,” he said.

First published: August 26, 2024 | 11:09 AM IST