The pension schemes in India have always been a matter of debate.
Earlier, in 2004, the Old Pension Scheme (OPS) was discontinued and the National Pension Scheme was introduced for the government employees which was a big shift for them. This is because, OPS offered a fixed lifetime pension whereas NPS was a market-linked scheme where there was no guarantee of returns.
And while these debates were still on, the centre has announced a Unified Pension Scheme (UPS) trying to bring together the best of both OPS and NPS
What changes with the UPS?
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Assured pension amount: 50% of the average basic pay over the last 12 months before retirement for those with at least 25 years of service.
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Government contribution: 18.5% of basic pay + DA (14% in NPS)
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Employee contribution: 10% of basic pay + DA (same as NPS)
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Assured minimum pension: ₹10,000 per month for employees with at least 10 years of service.
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Family pension: 60% of the pension amount is provided to the family in case of the retiree’s death.
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Lump sum payment: Employees will also receive a lump sum payment on retirement. This amount will be equal to one-tenth of the monthly salary(pay + DA) as on the retirement date for every six months of completed service. This will be over and above the assured pension that they’ll be receiving.
How does this compare to other pension schemes?
*subject to a minimum of 10 years of service
How does this affect us?
Well, for central government employees, they now have a choice to choose between UPS and NPS. UPS will give them a guaranteed pension amount whereas NPS will offer market-linked returns.
For private sector employee, nothing changes.
How does this affect the government?
Now, unlike NPS, the fixed pension under UPS will be an additional burden for the government, a fixed expense. The government has also increased their contribution to 18.5%. All of this is set to increase their pension expenses by ₹6,250 crore every year.
And where do we think this extra funds will come from?
What are your views on UPS?