The Unified Pension Scheme (UPS), a new pension scheme for government employees, has been unveiled by the Indian government. Nearly 90 lakh pensioners under the central government will benefit from the new system, which will offer an assured pension scheme.
The Unified Pension Scheme (UPS), a new pension scheme for government employees
In response to employee demands of a smaller corpus and lower returns from the National Pension Scheme (NPS) and the discontinuation of the Old Pension Scheme (OPS), the central government established the UPS.
1. Pension calculation differences: The Old Pension Scheme (OPS) and the Unified Pension Scheme (UPS) use distinct methods to determine the amount of pension. The guaranteed pension under the old scheme was set at 50% of the last salary plus dearness allowance (DA). In contrast, the guaranteed pension under the UPS will be equal to the average basic salary plus the DA (a cost-of-living adjustment allowance) received the year prior to retirement. This implies that upon retirement, government workers will receive 50% of the average income from the previous year plus the DA. An employee will receive a little less if they have been promoted to a higher pay scale in the last few months, as their salary will now be 50% of the average for the previous year.
2. Employee contribution to UPS: As with the National Pension System (NPS), employees under the UPS plan must contribute a 10% share to the pension fund. In the OPS, employees did not make contributions.
3. Tax benefits: It is anticipated that pension income under UPS will be subject to income-tax rates, similar to NPS, enabling a tax-free lump sum withdrawal of 60% of the total. Additionally, the UPS provides for a lump sum payment based on the length of service; however, it is unclear how this payment will be treated tax-wise.
4. Higher minimum pension under UPS: After ten years of minimum service, the minimum pension offered under the UPS program is Rs 10,000 per month at the time of retirement. The present minimum amount is Rs 9,000 after the ten-year minimum service period.
5. Lump sum payments: Lump sum payments are provided at the time of retirement under the UPS. It will be calculated as one-tenth of monthly salary plus DA, as on the date of retirement for every six months of service completed. The government release states that it won’t lower the pension’s amount. In contrast, OPS, enables the lumpsum to be taken at retirement through commutation of pension, which reduced the pensions amount.