The Cabinet approved the introduction of the Unified Pension System (UPS) over the weekend to improve the National Pension System (NPS) for central government employees.
A look at the key features of the Unified Pension System
-Employees who have adequate service will receive an assured pension of at least 50% of the average salary of the last 12 months as a pension.
-A minimum pension of Rs 10,000 per month will be given to those with at least 10 years of service.
-The family pension to the spouse will be delivered at 60% of the pension.
-Dearness relief will be granted on the insured pension, the minimum pension and the family pension.
-In addition, a lump sum will be paid at the time of retirement.
According to the government, there will be no increase in the contribution of employees, but the central government will increase its contribution. Those who have already retired under the NPS will also be entitled to this benefit. The arrears will be paid to such earlier retirees after adjusting the withdrawals already made by them.
Read also: Unified Pension System (SPU) vs. Old Pension System (SPA): Main Differences
The employee contribution will remain unchanged at 10% (basic salary + DA). The government contribution will increase from the current 14% to 18.5%.
The pension fund will be divided into two funds:
-an individual pension fund to which the employee’s contribution (10% of the basic salary and DA) and the corresponding government contribution will be credited.
-a separate common fund with additional contribution from the government only (8.5% of basic salary and DA of all employees).
How does it work?
The employee can exercise his investment right only on the individual pension fund. The employee can withdraw up to 60% of the individual pension fund with a proportional reduction of the insured pension.
The assured pension will be based on the “default mode” of investment pattern notified by the PFRDA and considering the full annuitization of the individual pension capital. In case the reference annuity is less than the assured annuity, the shortfall will be made up.
Read also: Explanation: The Unified Pension System (SPU)
In the event that the individual employee’s capital generates a higher annuity than the guaranteed annuity (based on the investment option chosen by the employee), the employee will be entitled to such higher annuity. However, if the annuity generated is lower than the predetermined rate, the top-up provided by the government through UPS will be limited to the reference annuity.
A full insured pension will be granted for a minimum of 25 years of service. For a shorter period of service, starting from at least 10 years, a prorated insured pension will be granted.
Employees would have the option to opt out of UPS. An employee could choose to continue with NPS, if they so choose.
The SPU will enter into force on 1 April 2025. The necessary administrative and legal support framework will be created.
Read also | Explanation: What is the Unified Pension System? Requirements, benefits and other details
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