The central government on Saturday approved the Unified Pension Scheme (UPS), which guarantees an “Assured Pension and Assured Family Pension.” Announcing the Cabinet’s decisions, Information and Broadcasting Minister Ashwini Vaishnaw said that under the UPS, government employees will receive 50 per cent of their average basic pay from the last 12 months before retirement as their pension. To qualify for this full pension, which is equivalent to 50 per cent of their basic pay, employees must have completed a minimum of 25 years of service.
Starting in the next financial year, National Pension Scheme subscribers will have the option to switch to the Unified Pension Scheme (UPS), which provides an assured pension.
Here is the difference between the ‘Unified Pension Scheme’ and ‘National Pension Scheme’
Under the Unified Pension Scheme, retirees receive a pension of 50 per cent of their average basic pay from the last 12 months of service, provided they have completed at least 25 years of service. For those with 10 to 25 years of service, the pension is proportionate to their service duration. While briefing the media, Cabinet Secretary-designate TV Somanathan announced that the new scheme will be effective on April 1, 2025. The scheme’s benefits will apply to those who retire by March 31, 2025, including the payment of any arrears.
The National Pension System (NPS) provides a pension based on the returns from contributions invested in debt and equity instruments. There is no guaranteed fixed pension amount, as it depends on market performance.
The Unified Pension Scheme guarantees a minimum pension of ₹10,000 per month for employees with at least 10 years of service, ensuring basic financial security, especially for those with lower pay scales. While NPS is applicable to government employees who joined service after April 1, 2004, requiring a 10 per cent contribution from the employee’s basic salary, matched by a 14 per cent contribution from the government.
The Unified Pension Scheme does not require individual contributions from employees. It focuses on a defined benefit model based on the last salary drawn and service length. Under the Unified Pension Scheme, in the event of an employee’s death, the family receives 60% of the employee’s pension, ensuring ongoing financial support for dependents.
Under NPS, the family’s pension would depend on the accumulated corpus in the pension fund and the annuity plan chosen at retirement. NPS features a two-tier account structure:
- Tier-1 Account: A mandatory pension account with tax benefits.
- Tier-2 Account: An optional investment account linked to Tier-1, offering flexibility for withdrawals.
The Unified Pension Scheme primarily applies to employees with a longer service tenure, offering stable and predictable retirement income. NPS applies broadly to newer government employees, providing potential for higher returns but with greater exposure to market risks.