Unified Pension Scheme To Combine Benefits Of Old And New Pension Plans

New Delhi [India], August 25 (ANI): The Modi government has introduced the ‘Unified Pension Scheme (UPS)’, a new initiative that combines the benefits of the old and new pension schemes. The scheme was approved on Saturday and is set to be implemented from April 1, 2025.

The decision comes amid demands from opposition parties to reinstate the Old Pension Scheme (OPS), which was replaced by the New Pension Scheme (NPS) in 2004. The NPS was based on contributions from both employees and employers, with the pension amount dependent on investment returns.

Key Features of the Unified Pension Scheme

The Unified Pension Scheme is designed to offer the best of both worlds. It includes provisions for a fixed pension amount, ensuring that retirees receive a guaranteed and predetermined sum regularly after retirement.

Under the UPS, all central government employees who have served for 25 years or more will be entitled to receive 50% of their last drawn salary from the past 12 months as a pension. Additionally, these employees will benefit from inflation-linked increments to their pension amount post-retirement.

For those with a minimum of 10 years of service, a proportional pension will be provided, with a minimum pension of Rs 10,000 per month. The scheme also includes a provision for an assured family pension, equivalent to 60% of the employee’s basic pay, to be provided in the event of the employee’s premature death.

Inflation-Linked Indexation and Gratuity

The UPS ensures that pensions, family pensions, and minimum pensions are all adjusted for inflation. Additionally, the scheme guarantees a gratuity or lump-sum amount upon retirement. This gratuity will be calculated based on the old formula: one-tenth of the monthly emolument (pay plus dearness allowance) on the retirement date, calculated for every six months of service.

Five Pillars of the Unified Pension Scheme

The government has highlighted five key pillars of the UPS:
1. Assured Pension
2. Assured Family Pension
3. Assured Minimum Pension
4. Inflation-Linked Indexation
5. Gratuity on Retirement

Comparison with NPS and OPS

The New Pension Scheme (NPS), introduced in 2004, allowed employees to withdraw a portion of their accumulated savings upon retirement, with the remaining amount used to purchase an annuity product for a monthly pension. Under NPS, employees could withdraw up to 60% of the total corpus without any tax implications, with the remaining 40% used for pension.

In contrast, the Old Pension Scheme (OPS) provided a fixed pension equal to 50% of the last drawn basic pay, including a dearness allowance (DA) to account for inflation. The OPS also included a gratuity payment and continued pension benefits for the employee’s family in the event of death, with no deductions from the employee’s salary for pension contributions.

UPS: A Balanced Approach

The government asserts that the Unified Pension Scheme (UPS) offers a balanced approach by incorporating the assured benefits of the OPS while retaining the option for employees to contribute towards a personalized and potentially higher pension, a feature of the NPS. Additionally, the government has increased its contribution under UPS from 14% (currently in NPS) to 18.5%, while the employee contribution remains unchanged.

This new scheme aims to provide financial security and stability to government employees post-retirement, addressing concerns raised by both advocates of the old and new pension systems.