The Unified Pension Scheme (UPS) was introduced by the government on August 24, 2024, replacing the 21-year-old National Pension System (NPS) with a structure closely resembling the Old Pension Scheme (OPS).
The scheme will be effective from April 1, 2025, according to the government’s announcement.
Key Features of Unified Pension Scheme:
Contributions under the UPS:
1.The scheme is contributory, requiring:
Employees to contribute 10% of their salary.
2.The government is to contribute 18.5% of the salary.
3.The government’s contribution may be adjusted based on periodic actuarial assessments to ensure the scheme’s sustainability.
Who can be beneficiaries of UPS?
The UPS will be applicable to all those who have retired under the NPS from 2004 onwards.
Other Provisions:
-Employees can still opt to remain under the NPS, but it is unlikely to be beneficial to them. However, an employee can only opt for once. once opted, the option can not be changed.
-Currently, the new scheme is for central government employees, but states can adopt it as well.
About NPS and OPS :
-The NPS replaced the OPS on January 1, 2004 as part of the Centre’s effort to reform India’s pension policies. Those joining government service after this date were put under the NPS.
-Under the OPS, pension to government employees both at the Centre and the states was fixed at 50% of the last drawn basic pay, like it is in the proposed UPS.
– In addition, there was Dearness Relief calculated as a percentage of the basic salary to adjust for the increase in the cost of living.
–The NPS was introduced by the Atal Bihari Vajpayee government because of a fundamental problem with the OPS , that it was unfunded, i.e., there was no corpus specifically for pension.
-Over time, this led to the government’s pension liability to balloon to fiscally unhealthy manner. With better healthcare facilities leading to longer average lifespans, the OPS could not have continued in the long run.
–The NPS was different from OPS in two fundamental ways:
(1)It did away with an assured pension.
(2) It would be funded by the employee himself/ herself, along with a matching contribution by the government.
– The defined contribution comprised 10 per cent of the basic pay and dearness allowance by the employee and the government’s contribution of 14 per cent (now proposed to be increased to 18.5 per cent).
– Individuals under NPS can choose from a range of schemes from low risk to high risk, and pension fund managers promoted by public sector banks and financial institutions, as well as private companies.
– Major difference between UPS and OPS is that the OPS is an unfunded non-contributory scheme. This (the UPS) is a funded contributory scheme.