Context:

The Union Cabinet recently approved the Unified Pension Scheme (UPS), offering government employees an assured pension from April 1, 2025

More on the news 

• In the past due to government employees' dissatisfaction with the National Pension Scheme (NPS), several state governments such as Himachal Pradesh (2023), Rajasthan, and Chhattisgarh (2022), and Punjab (2022), reverted to the Old Pension Scheme (OPS).
• In response to criticism, the Union government established a committee led by T.V. Somanathan to develop a solution that balances employees' needs with fiscal responsibility. 
• The Committee held extensive consultations leading to the introduction of the Unified Pension Scheme (UPS). 

Unified Pension Scheme

• The UPS is designed to enhance retirement benefits for government employees in India by integrating features from the Old Pension Scheme (OPS) and the National Pension System (NPS).

Key features of UPS:

• Assured Pension: Government employees with at least 25 years of service will receive a guaranteed pension equal to 50% of their average basic pay from the last 12 months before retirement. Those with fewer years will get a proportionate pension, with a minimum qualifying service of 10 years.
• Assured Family Pension: If an employee passes away, their spouse will receive a family pension amounting to 60% of the pension the employee was receiving.
• Assured Minimum Pension: Employees with at least 10 years of service will receive a minimum pension of ₹10,000 per month upon retirement.
• Inflation Indexation: The pensions under UPS will be subject to inflation adjustments through dearness relief based on the All India Consumer Price Index for Industrial Workers (AICPI-IW), maintaining the purchasing power of retirees in alignment with current economic conditions
• Lump Sum Payment on Superannuation: In addition to gratuity, employees will receive a lump sum payment at retirement, equal to 1/10th of their monthly emoluments (including pay and Dearness Allowance) for every six months of service completed. This lump sum will not affect the assured pension amount.

Eligibility for the UPS

• The Unified Pension Scheme (UPS) is available to those who retired under the NPS from 2004 onwards, with arrears adjusted against NPS payments. 
• Employees can choose to stay with the NPS, but this option is final. 
• The scheme applies to central government employees but can be adopted by states.

How does this affect us?

• For central government employees, now have a choice to choose between UPS and NPS. UPS will provide them with a guaranteed pension amount, whereas NPS will offer market-linked returns. 
• For private sector employees, nothing changes.

How does this affect the government?

• Unlike NPS, the fixed pension under UPS will impose an additional burden on the government as it will be a fixed expense. The government has also increased their contribution to 18.5%. All of this is expected to increase their pension expenses by ₹6,250 crore every year.

Difference between UPS, NPS, and OPS