Cabinet Approves Unified Pension Scheme (UPS)
Cabinet Approves Unified Pension Scheme (UPS)
On 24th August 2024, the Union Cabinet chaired by Prime Minister Narendra Modi approved the Unified Pension Scheme (UPS), marking a significant step in the direction of pension reforms in India. Below are the key features of the UPS:
Key Features of the Unified Pension Scheme (UPS):
1. Assured Pension:
- 50% of Average Basic Pay: The UPS ensures that an individual receives 50% of the average basic pay drawn over the last 12 months prior to superannuation, assuming a minimum qualifying service of 25 years.
- Proportional Adjustment: For those with lesser service periods, the pension is proportionally adjusted, with a minimum threshold of 10 years of service.
2. Family Pension:
- 60% of Employee Pension: In the event of the pensioner’s demise, the family is assured 60% of the pension that the employee was receiving immediately before their death.
3. Minimum Pension:
- ₹10,000 per Month: A minimum pension of ₹10,000 per month is guaranteed post-superannuation for those with at least 10 years of service.
4. Inflation Indexation:
- Indexation for Assured Pension: The UPS accounts for inflation by providing indexation on assured pensions, assured family pensions, and the assured minimum pension. This is based on the All India Consumer Price Index for Industrial Workers (AICPI-IW), similar to the current provisions for service employees.
5. Lump Sum Payment:
- 1/10th of Monthly Emoluments: Upon superannuation, in addition to gratuity, employees will receive a lump sum payment equal to 1/10th of monthly emoluments (Pay + DA) for every completed six months of service. Importantly, this payment does not reduce the quantum of the assured pension.
Comparison with Old Pension Scheme (OPS) and National Pension System (NPS)
1. Pension Calculation:
- OPS: Pension is calculated based on 50% of the last drawn salary, with the full amount being provided by the government.
- NPS: Pension is determined by the accumulated corpus, and employees contribute to their pension fund. The pension amount can vary depending on market returns.
- UPS: Similar to OPS, the pension is assured as 50% of the average basic pay over the last 12 months but includes proportional adjustments for lesser service periods and additional benefits such as lump sum payments.
2. Family Pension:
- OPS: Family pension is provided at a fixed rate, generally 30% of the last drawn pay.
- NPS: The family pension is dependent on the pension fund accumulation and annuity plan chosen by the deceased employee.
- UPS: Provides a higher family pension at 60% of the pension the employee was receiving.
3. Minimum Pension:
- OPS: Guaranteed minimum pension, generally around ₹9,000 per month.
- NPS: No minimum guaranteed pension; it depends on the accumulated corpus.
- UPS: Guarantees a minimum pension of ₹10,000 per month, surpassing both OPS and NPS.
4. Inflation Protection:
- OPS: Offers Dearness Allowance (DA) adjustments to pensioners.
- NPS: No direct inflation protection; the pension depends on market-linked returns.
- UPS: Includes inflation indexation for assured pensions and family pensions based on AICPI-IW.
5. Lump Sum Payment:
- OPS: Gratuity and commutation of pension, but no additional lump sum payment.
- NPS: Allows partial withdrawal from the pension fund and offers annuity options.
- UPS: Provides an additional lump sum payment equivalent to 1/10th of the monthly emoluments for every completed six months of service without affecting the pension.
Conclusion-
The Unified Pension Scheme (UPS) is designed to bring together the benefits of both the OPS and NPS while offering greater security, especially with its provisions for assured pensions, family pensions, and inflation protection. By introducing a minimum pension and a lump sum payment feature, the UPS aims to provide a more balanced and comprehensive approach to post-retirement financial security for government employees.
