Unified Pension Scheme (UPS) is the latest pension scheme launched by the Government of India for government employees. Its objective is to consolidate the various existing pension systems into a single, harmonious framework and ensure stability, dignity, and financial security of government employees. The UPS Pension Scheme guarantees a fixed minimum pension. Due to which 23 lakh central government employees will benefit under this scheme.
The creation of UPS was due to dissatisfaction among employees towards NPS, especially due to low corpus and returns as well as phasing out of the Old Pension Scheme (OPS).
When will UPS Pension Scheme Be Implemented?
The Integrated Pension Scheme will be effective from April 1, 2025, which will lead to an expenditure of about ₹800 crore on arrears and an annual cost overrun of about ₹6,250 crore in the first year.
Who is Eligible for UPS Pension Scheme?
1. To be eligible for a fixed pension under UPS, government employees must complete at least 10 years of service.
2. People who have completed 25 years of service will be given a fixed percentage of their average basic pay as pension.
3. Employees currently under NPS and those opting for Voluntary Retirement Scheme (VRS) under NPS are also eligible.
How Much Money will You Get After Retirement?
The government has not given detailed information about the exact amount that employees will get on retirement under UPS. Instead, a fixed formula has been introduced to calculate the amount to be received on retirement.
Gratuity Calculation
The government has given two formulas to calculate the amount that employees will receive on retirement. Gratuity is calculated based on 15 days’ salary of every month of service.
Formula: (Last Salary × Tenure ×15)÷26
For example, if the last salary of person A is Rs 1 lakh and he has completed 25 years of service then that employee will get Rs 1442308 as gratuity.
Lump Sum Payment Calculation
Employees are given a lump sum payment of 10% of their salary for every six months of service.
Formula: Lump sum payment: 6 Months Salary × 10% × Tenure ×2
For example, Person A will be given a total lump sum payment of ₹30 lakh after 25 years of service.
Total Amount You will Get After Retirement?
After retirement, person A will be paid Rs 4442308 including gratuity and lump sum payment.
Formula: Total Payment after Retirement = Gratuity + Lump Sum Payment
Link: Calculate Your UPS Pension
One Time Payment Concerns
There are concerns regarding post-retirement payments to employees, including the government’s unclear view on money deposited by employees during their service, including accrued interest. The government introduced a fixed formula to calculate the lump sum amount to be provided at retirement instead of returning the entire amount.
UPS Pension Scheme
Similar to NPS, under UPS employees are required to contribute 10% of their basic salary and DA to the pension fund. However, the government contribution has increased from 14% under NPS to 18.5% under UPS.
Minimum Pension Guarantee
Employees with service period of 25 years or more will be given full pension, but those with service period of at least 10 years will be given a minimum pension of ₹10,000.
Full Pension
Under UPS, employees with service period of 25 years or more will be entitled to the full pension amount. This pension amount will be 50% of the average of the basic pay + DA received during the last 12 months before retirement.
Family Pension
In the event of death of an employee, the spouse will be eligible for family pension, which will be 60% of the pension amount of the deceased employee + DA.
UPS Taxation
Details on taxation of pension income under UPS are still pending. It is expected that pension income will be subject to income tax, but the treatment of lump sum payments is unclear. Under the current NPS, 60% of the accumulated amount can be withdrawn tax-free at retirement, the remaining 40% can be invested in annuities which are subject to income tax.
Transition from NPS to UPS
UPS has been designed in such a way that both current participants of the New Pension Scheme (NPS) and retired persons can avail its benefits, for which you can shift from NPS to UPS. This change will begin from April 1, 2025. The government’s contribution under NPS will be 14% and under UPS the government’s contribution will be 18.5% of the employee’s basic salary and dearness allowance (DA).
Adoption by State Governments
UPS is a pension scheme mainly implemented by the Central Government for Central Government employees. If the state government wishes, it can implement the Unified Pension Scheme for state employees also. Maharashtra is the first state to implement UPS, it adopted this pension scheme on August 25, 2024. If all states implement this pension scheme, more than 9 million government employees will get benefits.
UPS Pension Scheme Retirement Benefits
- After retirement, a lump sum amount will be paid to the employee.
- Under the Unified Pension Scheme, 50% of the average salary of the last 12 months will be given as pension.
- UPS has a guaranteed minimum pension of Rs 10,000.
- After the death of the pensioner, 60% of his pension will be given to his spouse as family pension.
Conclusion
UPS Pension Scheme is a big relief for the central employees, it is a major change in the existing pension system by the Government of India. Employees are urged to remain informed about the provisions of the scheme, particularly as details on taxation and specific calculations continue to evolve. As the implementation date approaches, the government is expected to issue further guidelines to clarify any situations.
Q1. What is dr in ups pension scheme
Ans: The Dearness Relief (DR) is a type of relief given to pensioners and family pensioners. It will be based on the All India Consumer Price Index for Industrial Workers (AICPI-IW).
Q2. Is UPS better than NPS?
Ans: Yes, because the employee contributes 10% of her basic salary and DA whereas under UPS the government contributes 18.5% whereas in NPS the government contribution is 14%. Under UPS, there is a provision of fixed pension of 50% of the average salary of the last 12 months.
Q3. What is the full form of UPS?
Ans: The full form of UPS is Unified Pension Scheme. Which will be implemented from January 1, 2025.