UPS: Pension Amounts, Minimum Guarantee, And Comparisons With NPS & OPS

UPS: Under the new scheme, employees who have completed 25 years of service will be eligible for a pension amounting to 50% of their average basic pay during the past 12 months before retirement

The UPS offers a guaranteed full pension to employees with 25 years of service, and a proportional pension for those with at least 10 years of service.

Source : FreePik

UPS: Employees in the government sector opting for the Centre's newly introduced Unified Pension Scheme (UPS) can look forward to significantly enhanced pension benefits, thanks to an increase in the government's contribution. Effective April 1, 2025, the UPS will see the government's share rise from 14 per cent to 18.5 per cent, leading to a projected 19 per cent boost in pension payouts for employees with a starting salary of Rs 50,000, according to calculations from UTI Pension Fund reported by TOI.

Criteria

Under the new scheme, employees who have completed 25 years of service will be eligible for a pension amounting to 50 per cent of their average basic pay during the past 12 months before retirement. Those with at least 10 years of service will receive a proportional pension, with a minimum guarantee of Rs 10,000.

Difference Between UPS & NPS

Comparisons between the UPS and the current New Pension Scheme (NPS) reveal notable advantages for those opting for UPS. An employee starting at age 25 and retiring after 35 years of service could amass a pension corpus of Rs 4.26 crore under UPS, resulting in a monthly pension of Rs 2.13 lakh. By contrast, under NPS, the same employee would accumulate Rs 3.59 crore and receive a pension of Rs 1.79 lakh monthly. The substantial difference is attributed to the higher government contribution rate under UPS.

Even for employees starting later in their careers, the benefits of UPS are evident. For those beginning work at age 35 and retiring after 25 years of service, UPS offers a monthly pension of Rs 84,787, compared to Rs 71,400 under NPS. These estimates assume an annual fund growth rate of 8 per cent and a 6 per cent annuity return, further showcasing the superior retirement benefits of the UPS.

Components Of UPS 

The UPS divides the pension corpus into two components: an individual pension fund and a pooled corpus.

The individual fund comprises the employee's 10 per cent contribution of their basic pay and dearness allowance (DA) alongside the matching government contribution. The pooled corpus contains an additional 8.5 per cent contribution from the government, calculated from the basic pay and DA of all employees.

Features of UPS

Investment options will be available for employees to manage their individual pension corpus, although the assured pension will rely on a 'default mode' investment pattern as set by the Pension Fund Regulatory and Development Authority (PFRDA).

Up to 60 per cent of the individual pension corpus can be withdrawn, with corresponding reductions in the assured pension. If an employee’s investment yields a higher annuity than the guaranteed amount, they will benefit from the higher payout, while the government will cover any shortfall up to the benchmark annuity level.

The UPS offers a guaranteed full pension to employees with 25 years of service, and a proportional pension for those with at least 10 years of service. Employees can opt between continuing with the existing NPS or switching to the new UPS, depending on their retirement planning preferences.