The Cabinet has approved the Unified Pension Scheme (UPS) for the pension of government employees. This is a new scheme of the NDA government, which has been introduced parallel to the National Pension Scheme (NPS). Now government employees will have the option to choose between NPS and UPS.
UPS vs NPS vs OPS: The Union Cabinet has recently approved the Unified Pension Scheme (UPS), set to take effect from April 1, 2025. This new scheme aims to provide central government employees with an assured pension after retirement.
The introduction of the UPS comes amid ongoing debates over pension schemes, particularly the National Pension Scheme (NPS) and the Old Pension Scheme (OPS).
Here’s a look at the details of these pension schemes:
Old Pension Scheme (OPS)
Pension amount: Under OPS, retired government employees receive 50% of their last drawn ‘basic’ salary as a monthly pension.
This amount increases with dearness allowance (DA) hikes.
Family pension: Upon the retiree’s death, their family continues to receive pension benefits.
Contributions: No salary deductions are made for pension contributions under OPS. The government bears the entire cost.
Gratuity: Employees receive a gratuity of up to ₹20 lakh upon retirement.
National Pension Scheme (NPS)
Pension amount: NPS provides a market-linked pension. Employees contribute 10% of their salary, while the government contributes 14%. The final pension amount depends on market performance.
Family pension: The family pension depends on the accumulated corpus and annuity plans at retirement.
Contributions: Both employees and the government contribute to the fund, with the pension amount being variable based on market conditions.
Applicability: NPS covers all government employees (except armed forces) joining after January 1, 2004, and is also available for private sector employees.
Unified Pension Scheme (UPS)
Pension amount: UPS offers an assured pension of 50% of the average basic pay drawn in the last 12 months before retirement. For service periods between 10 and 25 years, the pension is proportional.
Family pension: The scheme provides 60% of the employee’s pension to their family in the event of their death.
Contributions: Employees will contribute 10% of their salary, matching the NPS contribution, but the government’s contribution rises to 18.5%, up from the 14% under NPS.
Inflation indexation: The UPS pension amount, family pension, and assured minimum pension are adjusted for inflation based on the All India Consumer Price Index for Industrial Workers (AICPI-IW).
Additional benefits: At superannuation, employees receive a lump sum payment of 1/10th of monthly emoluments for every six months of service, in addition to gratuity.
Key comparisons
| Feature | Unified Pension Scheme (UPS) | National Pension Scheme (NPS) | Old Pension Scheme (OPS) |
| Pension Amount | 50% of average basic pay over last 12 months before retirement. For service between 10-25 years, proportional. | Market-linked, depends on contributions and market performance. | 50% of last drawn salary. Increases with DA hikes. |
| Family Pension | 60% of the employee’s pension upon their death. | Depends on accumulated corpus and annuity plans at retirement. | Continued pension benefits to family after retiree’s death. |
| Employee Contribution | 10% of basic salary. | 10% of basic salary. | None. Government bears the entire cost. |
| Government Contribution | 18.5% of basic salary. | 14% of basic salary. | Entire cost borne by the government. |
| Inflation Indexation | Yes, based on All India Consumer Price Index for Industrial Workers (AICPI-IW). | Not applicable; pension is market-linked. | Yes, pension amount increases with DA hikes. |
Benefits and implications
The UPS is likely to benefit the 23 lakh central government employees by offering a reliable pension structure.
Employees transitioning from NPS to UPS will have their arrears paid and will benefit from the assured pension feature.
