What is the Unified Pension Scheme (UPS)?
The Unified Pension scheme is a new initiative by the Indian Government which is launched on 24th August, 2024. The Union Cabinet, under the leadership of Prime Minister, has approved a landmark decision in the form of the UPS. This scheme will be effective from 01 April, 2025. This progressive initiative is set to significantly enhance the pension benefits for 23 lakh central government employees and their family.
Table of Contents
Introduction of Unified Pension Scheme
The Unified Pension Scheme is a comprehensive retirement plant introduce to replace the existing National Pension System (NPS) for those who opt in. It aims to provide a steady income to retired government employees, ensuring their financial independence during their non-working years. The scheme is structured to offer various benefits, including assured pensions, family pensions, minimum pension benefits and inflation protection.
The salient Features of the Unified Pension Scheme (UPS)
1. Assured Pension:
- Government employees who retire after completion of at least 25 years of service will receive a pension that is 50% of their average basic pay of their last 12 months basic pay.
- For employees who complete less than 25 years of service, the pension will be proportionate to the years served, with a minimum of 10 years service required to qualify.
2. Family Pension:
- After death of government employees, immediately their dependents will receive a family pension equivalent to 60% of the employee’s last drawn pension.
3. Minimum Pension:
- The UPS ensures that no retired employee will receive less than Rs. 10,000 per month, irrespective of their earnings during service. This provision provides a safety net for those who receive low salaries during their service.
4. Lump-Sum Retirement Payment:
- In addition to the monthly pension, retirees will also receive a lump-sum payment which will be calculated as 1/10th of their last drawn monthly pay (including Dearness Allowance) for every six months of service completed. This lump-sum payment will be in addition to the gratuity payment.
5. Inflation Protection:
- Both the guaranteed pension and family pension will be adjusted for inflation indexation i.e Dearness Relief.
Eligibility Criteria
To be eligible for the Unified Pension Scheme, government employees must fulfil the following criteria:
- Service Tenure: Employees must have completed at least 10 years of service to qualify for the minimum pension. For the full benefits, including the 50% assured pension, employees need to have completed at least 25 years of service.
- Contribution: Employees will contribute 10% of their emoluments (basic salary +DA) to the pension fund, while the government will contribute 18.5% of the employee’s (basic salary +DA)
Benefits of the Unified Pension Scheme
1. Financial Security:
- The primary benefit of the UPS is the financial security because it provides guaranteed pension. Retirees can plan their post-retirement life without worrying about financial instability.
2. Support for Families:
- The family pension ensures that the dependents of deceased employees continue to receive financial support, which will help them to maintain their standard of living.
3. Minimum Pension Guarantee:
- The minimum pension guarantee of Rs.10,000 per month ensures that even employees with lower salaries during their career receive a decent pension amount.
4. Lump-Sum Payment:
- The lump-sum retirement payment provides an additional financial support for retirees for helping them to manage any immediate post retirement expenses. Because this payment will receive in addition to the assured Gratuity.
5. Inflation Indexation:
- The inflation adjustment feature ensures that the pension amount remains relevant and sufficient to fill the gap of the rising cost of living.
How the Unified Pension Scheme Works
Let’s explain in detail how the Unified Pension Scheme works with a few examples:
1. Assured Pension Example:
- If Mr. Gautam retires after 30 years of service with an average monthly basic pay of Rs.50,000 in his last year. His pension will be Rs.25,000 per month (50% of his average pay) + DA.
2. Family Pension Example:
- If Mr. Gupta was receiving a pension of Rs.20,000 before his death. Her family will now receive Rs.12,000 per month as a family pension.
3. Minimum Pension Example:
- If Mr. Gupta retires with a low average basic pay of Rs.18,000 per month, his calculated pension would be Rs.9,000. However, due to the minimum pension rule, he will still receive Rs. 10,000 per month.
4. Lump-Sum Payment Example:
- If Mr. Gautam retires with a last drawn monthly pay of Rs.60,000 (including DA) and has completed 30 years of service. He will receive a lump-sum payment of Rs.3,00,000 (1/10th of his last drawn pay for every six months of service).
Conversion from NPS to UPS
Currently, government employees are covered under the National Pension System (NPS). After the introduction of the UPS, employees have the option to switch to the new scheme. However, once employees choose UPS, the decision is final and cannot be reversed. The state Government can also adopt and implement the UPS scheme for state government employees. Maharashtra government is the first state to implement UPS.
Conclusion
The Unified Pension Scheme is a significant step taken by Govt of India towards ensuring financial security for government employees after post-retirement. By offering assured pensions, family pensions, minimum pension guarantees, and inflation protection, the UPS provides a comprehensive and reliable retirement plan. This scheme not only supports retirees but also provide support to their families.
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