Unified Pension Scheme (UPS) is the new pension scheme launched by the central government. The scheme is targeted for the employees of the central government who have been in the service since 01 January, 2004. Although the scheme was approved on 24Aug 2024, it will come into effect at the start of next financial year i.e. from 01 April 2025.

OPS vs UPS vs NPS: Differences

Old Pension Scheme (OPS): Features & Advantages

1. Monthly Pension: Under the Old Pension Scheme (OPS), retired government employees received a monthly pension equal to 50% of their last drawn salary. This amount was increased in accordance with the rates of Dearness Allowance (DA).
2. Gratuity: After retirement, employees were also entitled to receive gratuity, with a maximum limit of ₹20 lakh.
3. Family Pension: In the event of the death of a retired employee, their family continued to receive pension benefits.
4. No Salary Deduction: A significant aspect of OPS was that there was no deduction from the employee’s salary for pension contributions, which is in contrast to the New Pension Scheme (NPS).
5. Return to OPS: Recently, several states in India, including Himachal Pradesh, Rajasthan, Chhattisgarh, and Punjab, have decided to revert to the Old Pension Scheme, moving away from the NPS.

These features highlight the benefits and security that the OPS provided to retired government employees and their families.

National Pension Scheme (NPS): Features & Benefits

1. Government Contributions: Under the NPS, central government employees contribute 10% of their basic salary, while the government contributes 14%.
2. Variable Pension Amount: The pension amount under NPS is not fixed as it is linked to market activities. In contrast, the proposed Unified Pension Scheme (UPS) guarantees a pension of 50% of the salary for those who joined service after January 1, 2004.
3. Family Pension: The family pension under NPS depends on the accumulated amount in the pension fund and the annuity plan chosen at the time of retirement.
4. Applicability: NPS is applicable to all government employees, except for armed forces personnel who joined the central government on or after January 1, 2004. It is also available for private sector employees. Most state and union territory governments have also notified NPS for their new employees.

These features highlight the differences between NPS and the proposed UPS, particularly in terms of contributions, pension security, and family benefits.

Unified Pension Scheme (UPS): Features and Benefits

1. Guaranteed Pension: Under UPS, employees with a minimum qualifying service of 25 years will receive a pension equal to 50% of the average basic salary received during the last 12 months before retirement.
2. Proportional Pension: For employees with a service period of 10 to 25 years, the pension will be proportional to their service duration.
3. Family Pension: In the event of an employee’s death, their family will receive a guaranteed pension amounting to 60% of the employee’s pension just before their death.
4. Minimum Pension Assurance: The scheme includes a guarantee of a minimum pension of ₹10,000 per month after a minimum service of 10 years upon retirement.
5. Inflation Index: The UPS will apply an inflation index to the guaranteed pension, family pension, and minimum pension.
6. Inflation Relief: The inflation relief for service employees will be based on the All India Consumer Price Index (AICPI-IW) for industrial workers.
7. Lump Sum Payment: Employees will receive a lump sum payment at retirement, calculated as 1/10th of the monthly emoluments (salary + DA) for each complete six months of service. This lump sum payment is separate from gratuity and does not affect the guaranteed pension amount.
8. No Additional Financial Burden: Employees opting for UPS will not face any additional financial burden, as their contribution will remain at 10%, while the government’s contribution will increase from 14% to 18.5%.

These features of the UPS aim to provide a secure and stable pension system for employees, ensuring financial support during retirement and for their families.

Hi, I am Nikesh Mehta, owner and writer of this site. I’m an analytics professional and also love writing on finance and related industry. I’ve done online course in Financial Markets and Investment Strategy from Indian School of Business. I can be reached at nikeshmehta@allonmoney.com.