The Unified Pension Scheme (UPS ) is a newly approved pension policy by the Union Cabinet, whereby Central Government Employees are to be provided with an assured pension and family pension with a guaranteed minimum pension.
This UPS would provide a defined benefit from OPS along with the contributory nature of NPS so that the move brings in a more balanced fiscal policy while enhancing employee benefits.
Key Features of Unified Pension Scheme
With the Unified Pension Scheme, several features are attached to enhance the financial security of employees serving under governmental machinery. The significant features of the scheme are as follows:
Assured Pension under Unified Pension Scheme
Any employee who has rendered a minimum of 25 years of continuous service will be granted a guaranteed pension based on 50% of his average basic pay for the last 12 months prior to retirement.
Employees who have served for less than 25 years will receive a pension on a pro-rata basis. The minimum amount of service that will qualify for pension will be 10 years.
Guaranteed Family Pension under Unified Pension Scheme
In the case of unfortunate death of employee, his/ her spouse shall be awarded family pension which shall be 60% of pension which the employee was drawing prior to his / her death.
Assured Minimum Pension under Unified Pension Scheme
Any employee who has rendered a minimum service of 10 years shall be entitled to a minimum pension of ₹10,000 per month on retirement.
Inflation Protection in Unified Pension Scheme
The assured pension and family pension shall be indexed to inflation, which shall rise along with rising prices. This would correspond to the adjustments made with inflation in the pay of serving employees (Dearness Relief).
Lump Sum Payment on Superannuation
Besides gratuity, a lump sum will be paid at the time of superannuation. The same shall be computed as 1/10th of last drawn monthly pay (with Dearness Allowance) for every six months of service completed and shall not reduce the amount of assured pension.
How is the Unified Pension Scheme different from the NPS?
The Unified Pension Scheme differs with the National Pension System (NPS), which became operational starting January 1, 2004; it is an alternative for the Old Pension Scheme (OPS), which was in effect then. economically unviable.
The NPS is a contributory pension system; that is, it is self-contributory through which employees make a contribution of 10% of their basic pay plus Dearness Allowance, with the government also undergoing a contribution of 14%, now proposed to be raised to 18.5%. The UPS provides an assured pension without requiring any contribution from the employees.
Minimum Pension in Unified Pension Scheme
A minimum assured pension of ₹10.000 per month is guaranteed under the UPS, whereas no such guarantee is provided under NPS since market performance decides the returns.
Flexibility and Choice
The UPS provides employees with the option to choose between the extant NPS and the new UPS, but that category cannot be changed later.
Who is Entitled to the Unified Pension Scheme?
The Unified Pension Scheme will be applicable to all central government employees who retired under the NPS from 2004 onwards. The scheme is expected to come into effect from April 1, 2025, under which about 23 lakh central government employees will stand to benefit.
While state governments may take it up, too, the number would enhance the coverage of this particular scheme to about 90 lakh employees, greatly increasing its applicability.
Fiscal Prudence of the Unified Pension Scheme
The financial implications of the Unified Pension Scheme are huge. According to TV Somanathan, the Finance Secretary, the adjustment of arrears for the retirees under the NPS, which is in arrears, would mean a hit of up to ₹800 crore in the first year on the exchequer.
The enrollment will mean a total expenditure of around ₹6,250 crore towards the scheme.
The UPS is extremely costly, but it is also considered financially responsible because it is a contributory funded program rather than the OPS, which was a non-contributory, unfunded program.
Government Support and Implementation of UPS
In fact, Prime Minister Narendra Modi has specifically backed the Unified Pension Scheme, emphasizing that it would play a key role in ensuring dignified life and financial security to employees working in the government.
The scheme has been designed after a series of consultations, with the Centre conducting over 100 meetings with top organizations, including the Reserve Bank of India and the World Bank, to finalize its framework.
The DoE within the Ministry of Finance is expected to issue an outlined operational framework for the implementation of the UPS. The scheme broadly outlines procedures for most such eventualities—like the retired people under the purview of the NPS—and partial withdrawals of their annuity.
Potential Impact of the Unified Pension Scheme
This will do much in the life of a central government employee, bringing more financial security in old age and greater peace of mind.
With assured benefits and protection against inflation, the UPS represents a more balanced approach to pension planning, blending the best elements of the old and new systems.
Comparison of Pension Schemes
To further illustrate the differences between the various pension schemes, here’s a table that compares the key features of the UPS, OPS, and NPS:
| Feature | Unified Pension Scheme (UPS) | Old Pension Scheme (OPS) | National Pension System (NPS) |
| Assured Pension | 50% of last 12 months’ average pay | 50% of last drawn basic pay | No assured pension |
| Employee Contribution | None | None | 10% of basic pay + DA |
| Government Contribution | Contributory (14%, proposed 18.5%) | Not applicable | 14%, proposed to increase to 18.5% |
| Minimum Pension | ₹10,000 per month | Not applicable | No guaranteed minimum |
| Inflation Protection | Yes | Yes | No guaranteed protection |
| Family Pension | 60% of employee’s pension | Yes | No guaranteed amount |
Conclusion: The Future of Pension Schemes in India
The launch of the Unified Pension Scheme brings in a sea change in the approach to employee pensions by the Government of India.UPS melds the assured and contributory elements, bestowing a more sustainable and more equitable pension system.
How the scheme is received by employees, and whether it encourages other states to take similar steps, will be known only as the scheme rolls out in 2025.
