What Is Unified Pension Scheme? See What Changes It Brings

The UPS provides assured pension wherein 50 per cent of the average basic pay of an employee drawn over the last 12 months before superannuation is given to an individual

The Government of India on Saturday gave a nod to the Unified Pension Scheme (UPS) for government employees. The new scheme will come into effect from the next fiscal year starting April 1, 2025. The UPS comes after the central government employees have been demanding changes in the new pension scheme (NPS).

Unified Pension Scheme (UPS)

The latest scheme announced by the central government puts in place the provision of a fixed assured pension. It includes some major revisions, such as assured pension wherein the UPS provides 50 per cent of the average basic pay of an employee drawn over the last 12 months before superannuation to an individual. To be eligible to draw assured pension, an employee needs to be working for a minimum of 25 years. This pay is to be proportionate for a lesser service period for a minimum of 10 years.

The UPS provides employees with a fixed/assured family pension of 60 per cent of the amount the individual was receiving in the form of a pension. The scheme sets for releasing it immediately in the event of the retiree’s death.

The UPS also implements an indexation benefit on assured pension, family pension, and minimum pension. The scheme states that lump-sum payment is to be made at superannuation along with the gratuity. This will come up to be 1/10th of the monthly allowance, including pay and dearness, set for the date of superannuation for every completed six months of service. This amount will however not have any effect on the quantity of the assured pension.

New Pension Scheme

All central government employees will be given the opportunity to decide whether they want to opt for the New Pension Scheme (NPS) or join the newly introduced Unified Pension Scheme (UPS). These choices will be available to all who have retired under the NPS from 2004 onwards. 

Launched in 2004, the National Pension Scheme (NPS) was meant to fund retirement specifically for government employees, but was later expanded to include other sectors. The scheme is overseen jointly by the government and the Pension Fund Regulatory and Development Authority (PFRDA). It was developed as a voluntary investment scheme for the long term to cater for retirement.

The New Pension Scheme (NPS) doesn’t have any provision for a fixed pension amount. On retirement, the scheme provides the individual an option to withdraw a part of their accumulated funds, while the remaining amount can be distributed as a monthly income. This scheme aims to provide employees with a regular income source after their retirement.

Section 80 CCD of the Income Tax Act provides tax benefits of up to Rs 1.5 lakhs for individuals investing in the scheme, while individuals don’t have to pay any tax if they take out 60 per cent of the NPS funds on retirement.