The Central Government has announced a new Pension Scheme for government employees called the Unified pension scheme(UPS). The Unified pension scheme(UPS) will provide an assured pension scheme to benefit 23 lakh central government employees. The Unified pension scheme(UPS) announced by the government , has some significant differences from the OPS.
What Happens ?
Trade unions are divided over the Unified pension scheme(UPS) announced by announced by the central govt. on Saturday with the majority demanding restoration of old pension scheme (OPS) which was non contributory .
While central trade unions like the All India Trade Union Congress(AITUC) and Centre of Indian Trade Unions (CITU) have outrightly rejected the Scheme. RSS- affiliate Bhartiya Mazdoor Sangh (BMS) said though its is close to the OPS yet difference remain and the trade union will decide on its future course of action after the details of UPS are out.
5 Major difference between Unified pension scheme(UPS) & old pension scheme (OPS)
- Basis of Calculation of Assured Pension Change :
Both The old pension scheme (OPS) & Unified pension scheme(UPS) offer assured pensions to government employees. However, there is difference between the two schemes in how pensions are calculated . Under the old pension scheme (OPS), the assured pension was fixed at 50% of the last drawn basic salary + dearness allowance (DA).
However, under the Unified pension scheme(UPS), the assured pension will be the average basic salary + DA drawn in the previous 12 months before superannuation. This would mean that government employees, at retirement, will get 50% of the average of the last 12 months’ salary + DA. This means that if an employee is promoted to higher pay scale for the last few months pf his tenure with government, then he/she will not get 50% of the last pay drawn but a slightly lower amount.
- Employees will have to contribute to Unified pension scheme(UPS)
Under the Unified pension scheme(UPS), an employee is required to contribute to the pension fund. This is similar to an employee’s contribution to the national Pension System (NPS). Employees must contribute 10% of their basic pay and dearness allowance to Unified pension scheme(UPS) . The Government will also contribute to the Unified pension scheme(UPS), which will increase from 14% (Currently contributed to NPS) to 18.5% .
However, Under Olde pension scheme (OPS), the employee did not contribute. Due to this, the old pension scheme was fiscally unsustainable in the long run, according to media reports.
- Tax benefits
A central government employees is currently eligible for tax benefits for the government’s contribution to the NPS scheme. As there was no employees contribution to the Old pension scheme (OPS), no tax benefits were available. The government needs to clarify if employee and government contributions are available for any tax benefits.
- Higher assured Minimum pension in UPS
The Unified pension scheme(UPS), offers an assured minimum pension of Rs 10,000 per month at the time of retirement after a minimum of ten years of service. According to government’s pension portal, the minimum pension is presently Rs 9000 per month after ten years of minimum services.
- Lumpsum payment without reduction of pension
The Unified pension scheme(UPS) offers Lump sum payment at the time of superannuation. The lumpsum payment will be as 1/10th of monthly emoluments (Basic Pay + DA) as on the date of superannuation for every six months of service completed. This payment will not reduce the quantum of assured pension, as per the government’s press release.
This appears to be better than the OPS because under the latter, Lump sum could be taken at the time of retirement which reduced the pension amount. Under the old pension scheme, a central government servant can commute a portion of pension, not exceeding 40%, into a lump sum payment. No medical examination is required if the option is exercises within one year of retirement.
Bottom Line
The Unified Pension Scheme (UPS) marks a significant departure from the Old Pension Scheme (OPS) for central government employees in India. While the UPS offers certain advantages, such as a higher assured minimum pension and a lump sum payment without reducing the pension, it also introduces new elements like employee contributions and a different pension calculation method.
The trade unions’ reactions to the UPS are mixed, with some outright rejecting it and others expressing concerns while awaiting further details. The decision to switch to the UPS will likely have long-term implications for the financial well-being of central government employees and the government’s budget.
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