Himdarshan Samachar

The central government has introduced the Unified Pension Scheme (UPS) for central employees, replacing the New Pension Scheme (NPS). On Saturday, August 24, Union Minister Ashwini Vaishnaw announced the approval of UPS by the Cabinet. This scheme will come into effect from April 1, 2025.

The UPS is set to benefit 2.3 million central government employees, who will have the option to choose between the UPS or NPS. State governments may also adopt this scheme, and if state employees join, around 9 million employees could benefit.

How is UPS different from NPS? 
When asked how UPS differs from the New Pension Scheme and Old Pension Scheme, former Cabinet Secretary T.V. Somanathan explained that UPS is a fully contributory funded scheme, meaning employees will contribute 10%, similar to NPS. However, unlike NPS, UPS offers a fixed pension guarantee without leaving it to market fluctuations. The benefits of both OPS and NPS are included in UPS.

In the New Pension Scheme, employees contribute 10% of their basic salary, and the government contributes 14%. Under UPS, the government will increase its contribution to 18.5% of the employee's basic salary, while the employee's 10% contribution remains unchanged.

Somanathan also mentioned that employees who retired under NPS from 2004 to March 2025 will benefit from UPS. Any payments already received or withdrawn from the fund will be adjusted before making the final payment.

The increase in the government's contribution from 14% to 18.5% will result in an additional expenditure of ₹6,250 crore in the first year, with costs increasing annually.

Key benefits of the new scheme:

• Minimum Pension: Employees will receive a minimum pension of ₹10,000. Those opting for NPS can also switch to UPS, and they will receive DA instead of DR.
• Guaranteed Pension: The government guarantees a pension equal to 50% of the employee's basic salary.
• Calculation Formula: The average of the employee's basic salary over the last 12 months before retirement will be used to calculate the pension. The pension amount will be 50% of this average.
• Eligibility: Employees must have a minimum of 25 years of service to qualify for the full 50% pension. For those with less service, a proportional pension will be provided.
• Contribution: Employees' contribution remains at 10%, while the government's contribution will increase to 18.5%, with periodic reviews every three years to consider further increases.
• Family Pension: In case of an employee's death, the family will receive a pension equal to 60% of the employee's basic salary, calculated based on the last month's basic salary before death.
• Retrospective Application: Employees who retired under NPS after 2004 can also benefit from UPS, and arrears will be paid with interest, at the same rate as PPF.
• DR Adjustment: The scheme includes a provision for dearness relief (DR) adjustments based on inflation.
• Lump Sum Benefits: In addition to gratuity, employees will receive a lump sum equal to 1/10th of their last drawn monthly emoluments (salary + DA) for every six months of service at the time of retirement, in addition to the pension.
• State Government Adoption: The central government has clarified that state governments can implement UPS for their employees. State employees may pressure their governments to adopt this scheme.

Comparison with OPS and NPS:

For an employee with 25 years of service and a basic salary of ₹50,000:

• OPS: Pension of ₹25,000 (50% of basic salary) + DA, Family pension of ₹15,000 (30% of basic salary) + DA, and a minimum pension of ₹9,000 + DA.
• UPS: Pension of ₹25,000 (50% of basic salary) + DR, Family pension of ₹30,000 (60% of basic salary) + DR, and a minimum pension of ₹10,000 + DR.

Gratuity in UPS: For 25 years of service with a basic salary of ₹50,000, the gratuity under OPS would be ₹12,37,500, while under UPS, it would be ₹9,37,500.

Why UPS is better: Former Cabinet Secretary T.V. Somanathan, who chaired the committee that designed the pension plan, stated that UPS is 99% better than NPS. It offers a guaranteed pension option.

Unified Pension Scheme (UPS): Employees will receive a pension equal to 50% of their last drawn salary. Those who retire with more than 10 years but less than 25 years of service will receive proportional benefits. Employee contribution is 10%, while the government’s contribution is 18.5%. Unlike NPS, UPS is not market-linked, but it retains the provision for DR, similar to OPS. NPS employees can also opt for UPS.

Cabinet Meeting: Prime Minister Narendra Modi met with central government employee leaders at his residence before the Cabinet meeting. The Personnel Ministry issued a notice on August 21 regarding this meeting. This announcement comes as two states, Jammu and Kashmir and Haryana, are set for assembly elections.

This was the first meeting in ten years where the Prime Minister and members of the National Council of Central Government Employees, also known as the Joint Consultative Machinery (JCM), participated. The meeting discussed OPS, NPS, and the 8th Pay Commission.

AIDEF Boycott: The All India Defence Employees Federation (AIDEF), the largest central government employees' organization after Railways, boycotted the Prime Minister's meeting. AIDEF General Secretary C. Srikumar said the organization would not participate in the meeting because the discussion would focus on NPS reforms rather than OPS restoration. The organization had already expressed its demand for OPS, not NPS. AIDEF also boycotted the Finance Ministry's meeting on July 15.

Planned Strike: Employee organizations wrote to Prime Minister Modi on February 29, 2024, demanding the closure of NPS and the implementation of a guaranteed Old Pension Scheme (OPS). They threatened an indefinite strike starting May 1, 2024, if their demands were not met. The strike was postponed after the government assured them of discussions.

Somnathan Committee: In April 2024, the government formed a committee, headed by the then Finance Secretary T.V. Somanathan (now appointed as Cabinet Secretary), to reform NPS. The committee studied pension schemes worldwide, including reforms undertaken by the Andhra Pradesh government. Based on the committee's recommendations, the government introduced the Unified Pension Scheme.