Unified Pension Scheme vs OPS; Check Differences Here

Finance Minister Nirmala Sitharaman on Tuesday said the newly launched UPS is a new pension scheme and not a rollback of NPS. UPS is tailored in such a fashion that every calculation fits and even the government is not burdened too much, she said.

“It is not a rollback… it is different from OPS (Old Pension Scheme) and NPS (National Pension System). It is clearly a new package,” she said, adding, the Unified Pension Scheme (UPS) is better and will satisfy most government employees.

She expressed hope that most of the states would adopt UPS “as it has a lot of benefits for employees”.

The just-announced Unified Pension Scheme for 23 lakh central government employees will be available only for those who are currently subscribers of the NPS, including retirees.

Old Pension Scheme vs Unified Pension Scheme

Under the old pension scheme (OPS), effective before January 2004, employees got 50% of their last drawn basic pay as pension.

Unlike the old pension scheme, UPS is contributory, wherein employees will be required to contribute 10% of their basic salary and dearness allowance while the employer’s contribution (the central government) will be 18.5%.

Under the NPS, the employer contribution is 14%, and the employee contribution is 10%. However, the eventual payout depends on the market returns on that corpus, mostly invested in government debt.

Employees, under the OPS, were not required to make any contribution. They, however, contributed to the General Provident Fund (GPF). The accumulated amount, along with interest, was paid to the employee at the time of retirement.

As the NPS was less attractive than the OPS, states decided to go back to the old pension scheme, which offered a DA-linked benefit.

This prompted the Centre to constitute a committee in April 2023, under former Finance Secretary and now Cabinet Secretary-designate T V Somanathan to suggest improvement in the NPS architecture.

Key features of the UPS are as follows:

• Assured Pension: 50% of the average basic pay drawn over the last 12 months prior to superannuation for a minimum qualifying service of 25 years.
• Proportionate for lesser service period up to a minimum of 10 years of serviceAssured Family Pension: @60% of pension of the employee immediately before her/his demise
• Assured Minimum Pension: @ 10000 per month on superannuation after minimum 10 years of service

Inflation Indexation:

On assured pension, on assured family pension and assured minimum pension.

Dearness Relief based on All India Consumer Price Index for Industrial Workers (AICPI-IW) as in case of serving employees

Benefits:

• Lump-Sum payment at superannuation in addition to gratuity
• 1/10th of monthly emolument (pay + DA) as on the date of superannuation for every completed six months of service
• This payment will not reduce the quantum of assured pensionOther Features of UPS:
• Provisions of UPS will apply to past retirees of NPS (who have already superannuated).
• Arrears for past period will be paid with interest @PPF rates
• UPS will be available as an option to the employees. Existing as well as future employees will have an option of joining NPS or UPS. Choice, once exercised, will be final
• Employee contribution will not increase. Government will provide additional contribution for implementing UPS
• Government contribution increased from 14 to 18.5%

Implementation of UPS:

• UPS to be given effect from April 1, 2025
• Support mechanism and necessary legal, regulatory and accounting changes will be readied
• UPS is being implemented by the Central Government
• Benefiting ~23 lakh Central Government employees
• The same architecture has been designed and adopted by State Governments, which will benefit over 90 lakh State Government employees who are presently on NPS.
• Those opting for the UPS will not be able to switch back.

Cost on Government

The UPS will put an additional burden of Rs 6,250 crore on the exchequer per year. The expenditure will vary every year according to variations in the number of employees.

In addition, there will be an arrear of Rs 800 crore that has to be paid under the National Pension System (NPS) to employees retiring before March 31, 2025. If these retirees opt for UPS, they will receive arrears.

“UPS is being implemented by the Central Government, benefitting 23 lakh central government employees,” Information & Broadcasting Minister Ashwini Vaishnaw said on Sunday.

If states also adopt the UPS architecture, a total of over 90 lakh government employees, who are presently on NPS, would be benefitted, he added.

Icra Chief Economist Aditi Nayar said assured pensions will add to the government’s committed expenditure in the future while reducing the uncertainty for employees.

“This will have to be built into the fiscal consolidation roadmap going ahead,” Nayar added.

The UPS reflects a thoughtful approach to long-term social security, addressing concerns about the adequacy and sustainability of pension benefits in a rapidly changing economic landscape, said Shardul Amarchand Mangaldas & Co Partner Dorothy Thomas.

“This move signals the government’s commitment to providing robust support for its workforce, enhancing financial stability for millions of government employees across the country,” Thomas said.