Government Introduces Unified Pension Scheme for Central Employees

The Government of India has unveiled a new pension plan known as the Unified Pension Scheme (UPS) for employees working under the central government.

This initiative aims to provide an assured pension benefit to approximately 90 lakh pensioners and responds to ongoing demands regarding the lower corpus and returns associated with the National Pension Scheme (NPS), as well as calls for the reinstatement of the Old Pension Scheme (OPS).

One of the primary differences between UPS and OPS lies in the calculation method for pensions. Under the Old Pension Scheme, the assured pension was set at 50% of the last basic salary plus Dearness Allowance (DA). In contrast, UPS will calculate the assured pension based on the average basic salary plus the DA drawn in the previous year before retirement, where employees will receive 50% of this average.

Additionally, employee contributions will be required under the UPS scheme. Employees must contribute 10% of their basic pay and DA, while the government will contribute 18.5%, an increase from the previous 14% under NPS. In OPS, employees made no contributions.

There are also tax benefits associated with the UPS. Central government employees can benefit from a deduction of 14% on the government’s contribution to the NPS under the Income Tax Act 1961, which was not applicable in OPS due to the absence of employee contributions.

Moreover, UPS guarantees a minimum pension of ₹10,000 per month after a minimum service period of 10 years, an increase from the current minimum of ₹9,000.

Under the UPS, lump-sum payments will be available at the time of retirement, calculated as one-tenth of the monthly salary plus DA for every six months of completed service. This approach does not reduce the overall pension amount, a notable departure from the OPS, where pension commuting could reduce the retirement benefit.

Both the UPS and OPS share a common feature: the provision of inflation-indexed pensions to accommodate rising living costs. The OPS pension is adjusted biannually based on announcements regarding the dearness allowance, while UPS will use the All India Consumer Price Index for Industrial Workers (AICPI-IW) to determine adjustments.