Sentinel Digital Desk
The Union Cabinet on Saturday (August 24) approved the Unified Pension Scheme (UPS), which will provide government employees with assured pension after retirement. The scheme will be effective from April 1, 2025, according to the government’s announcement.
What is the Unified Pension Scheme?
The Unified Pension Scheme (UPS) is a newly introduced pension system set to launch in April 2025. This scheme is designed to offer government employees more stable retirement benefits, combining the best features of the Old Pension Scheme (OPS) and the National Pension System (NPS).
Key Features of the Unified Pension Scheme
- Assured Pension: Employees with at least 25 years of service will receive 50% of the average basic pay of the last 12 months before retirement.
- Family Pension: In the event of a retiree's death, the family is entitled to 60% of the pension.
- Minimum Pension: Guarantees a minimum of ₹10,000 per month for retirees with at least 10 years of service.
- Inflation Protection: Pensions will be adjusted based on inflation, ensuring that the value of the pension does not erode over time.
What Led to the Introduction of UPS?
- Dissatisfaction with NPS: The NPS, while offering flexibility and potential for higher returns, faced criticism for its market-linked nature and lack of guaranteed returns. Many employees found it less secure, especially as it did not provide inflation adjustments.
- Challenges with OPS: Although OPS offered a fixed pension, it became financially unsustainable for the government due to increasing life expectancy and rising pension liabilities.
Eligibility for the Unified Pension Scheme
- The UPS will be available to central and state government employees. Those with at least 10 years of service can qualify for a pension under this scheme, with better benefits offered to those with longer service durations.
UPS vs. OPS vs. NPS
- Old Pension Scheme (OPS): Provided a fixed pension but became financially unsustainable due to rising costs.
- National Pension System (NPS): A market-linked scheme that offers flexibility but comes with the risk of variable returns.
- Unified Pension Scheme (UPS): A hybrid approach that combines the stability of OPS with some features of NPS, offering guaranteed returns and inflation protection without the financial risks associated with market-linked returns.
The Future of UPS
- Fiscal Impact: In its first year, the UPS is expected to cost the exchequer Rs 6,250 crore, plus an additional Rs 800 crore in arrears.
- Flexible Options: Although employees have the option to remain with NPS, UPS is anticipated to be more beneficial for the majority.
- Political Significance: Given that a number of states are still against NPS, the UPS offers a reasonable alternative that strikes a balance between cost-effectiveness and employee perks.