The recently approved Unified Pension Scheme (UPS) offers a significant change from the existing National Pension System (NPS) for government employees. The new scheme promises a more predictable retirement income compared to the NPS, which is subject to market fluctuations.
Under the Unified Pension Scheme, government employees will be eligible for a pension equal to 50 percent of their average basic pay from the last 12 months of service.
To qualify for this full pension, employees need to have completed a minimum of 25 years of service. For those with less than 25 years but at least 10 years of service, the pension amount will be proportionate to their years of service. This scheme also includes an assured family pension, where dependents receive 60 percent of the employee's pension in the event of their death.
The Unified Pension Scheme, set to start on April 1, 2025, also introduces a guaranteed minimum pension of ₹10,000 per month for employees with at least 10 years of service.
This feature ensures financial security, particularly for those with lower pay scales. Importantly, unlike the NPS, the UPS does not require individual contributions from employees. Instead, it operates on a defined benefit model based on the employee’s last drawn salary and length of service.
In contrast, the National Pension System provides a pension based on the returns from investments in debt and equity instruments, meaning there is no guaranteed fixed pension amount.
The NPS is applicable to government employees who joined after April 1, 2004, and requires a 10 percent contribution from the employee's basic salary, with the government matching this with a 14 percent contribution. The pension under NPS depends on the accumulated corpus and the annuity plan chosen at retirement, making it subject to market risks.
The UPS offers stability and predictability, which is a shift from the market-dependent returns of the NPS. It primarily benefits employees with longer service tenures, providing them with a reliable retirement income.
On the other hand, NPS, with its potential for higher returns, comes with greater exposure to market volatility and requires more active management of the pension fund.
The new scheme’s introduction marks a significant shift towards providing more assured financial security for government retirees, addressing some of the uncertainties associated with the NPS.
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