On August 24, 2024, the Indian government approved a new pension scheme called the Unified Pension Scheme (UPS), which will come into effect from April 1, 2025. Through this scheme, the government aims to strike a balance between the old pension scheme (OPS) and the new pension scheme (NPS). Opposition parties had long been demanding the reinstatement of OPS, which was replaced by NPS in 2004.
Unified Pension Scheme’s 5 Pillars: Guaranteed Pension and Gratuity
The government has incorporated five key pillars under the Unified Pension Scheme, including a guaranteed pension, guaranteed family pension, guaranteed minimum pension, a cost-of-living adjustment index, and gratuity upon retirement. The primary objective of the UPS is to provide employees with a stable and secure future. Under OPS, employees were entitled to a maximum gratuity of Rs. 20 lakh upon retirement, and their families received a continuous pension in case of death. In UPS, the government has retained the gratuity provision and added other benefits as well.
Reconciling OPS and NPS: Increased Government Contribution in UPS
Under the Unified Pension Scheme (UPS), the government has increased its contribution to NPS from the existing 14% to 18.5%. However, the employees’ contribution will remain the same. Additionally, all central government employees serving for 25 years or more will receive 50% of their last 12 months’ salary as a pension. It is ensured that the pension amount will be linked to inflation, helping employees cope with rising costs even after retirement.
Family Pension and Minimum Pension Provision under UPS
The Unified Pension Scheme also includes a provision for a guaranteed family pension, which will be equal to 60% of the employee’s basic salary. This pension will be given to the families of employees who die prematurely. Furthermore, employees with a minimum of 10 years of service will be eligible for a pension, and this pension will be adjusted in proportion to the number of years of service. The minimum pension amount has been set at Rs. 10,000 per month.
The Unified Pension Scheme (UPS) is a new pension scheme that the central government has decided to implement from April 1, 2025. This scheme has been created by combining the benefits of OPS and NPS.
