Adding a major upgrade to the country's pension system, the government of India has announced the Unified Pension Scheme (UNP). The new scheme combines the goodness of both the New Pension Scheme (NPS) and the Old Pension Scheme (OPS). Set to launch on April 1, 2025, UPS will offer perks like fixed pension and inflation protections.

The central government employees were not happy with the NPS, as it lagged in multiple departments. They demanded several key reforms in the scheme, including fixed pensions and higher government contributions. In the light of this protest, the government introduced UPS.

Unified Pension Scheme
Image Source: Bhu Aadhaar

Benefits under Unified Pension Scheme

The UPS is set to offer a guaranteed pension (which was the major drawback of NPS), amounting to 50 per cent of the average salary earned by the retiree in the last year of service after completing 25 years in the service. The UPS will also offer an assured minimum pension of ₹10,000 to retirees with fewer years of service.

The new scheme will further provide an industrial indexation, adjusting the amount as per the cost of living. A gratuity amount will also be given calculating the final salary and serving of the employee. Family Pension is another new addition to the benefits. It is noteworthy that family pension was amongst several benefits of OPS, which was discontinued in NPS.

There is an additional benefit of Lump-Sum payment, which will be decided after calculating 1\10th of their last drawn monthly, including dearness allowance for every six months served in the government.

However, a key feature of NPS finds its way into the UPS. It is a contributory and fully funded scheme, which will allow individuals to contribute to their pension for a thick payout on retirement.

Eligibility

According to the reports, all those who retired under NPS in 2004 can avail benefits of the UPS. All government employees who are currently under NPS or the Voluntary Retirement Scheme (VRS) will also get an option to join the UPS, which will then remain unchanged. However, the employees can remain under the NPS.

UPS vs NPS

Despite all the benefits of UPS, it's still tricky to choose between the two. UPS, however, offers a fixed pension with other crucial benefits like industrial indexation, but it still does not guarantee you the maximum payout at your retirement. Meanwhile, investing in NPS is a risky choice as the pension amount is flexible here. It will fluctuate as the investment is made in market-linked security schemes. NPS can give you more returns than UPS, but it's a vice-versa situation as it depends on the market's behaviour.

If you want an assured payout, go for the UPS, but if you want to take a risk for a higher return, go for the NPS.

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