Comparison between NPS and UPS: Following criticism for the removal of the Old Pension Scheme, the Narendra ModiThe government-led scheme has implemented a Unified Pension System that aims to combine the benefits of OPS with the features of NPS.
The NPS was created by the Atal Bihari Vajpayee administration to address the one major flaw of the OPS – its lack of funding. The latter encourages greater sustainability of the pension system by allowing contributions to be much more individualistic in nature.
“UPS aims to combine the best elements of OPS and NPS. It offers the security of a fixed pension and the inflation adjustments of OPS, while incorporating the contributory nature of NPS for a potentially higher pension payout,” said Arpit Suri, CA and personal finance expert.
Unified Pension System (SPU)
The UPS will be implemented in the fiscal year 2025-26. It is aimed at addressing the grievances of government employees who are dissatisfied with the National Pension System.
Unlike the NPS, which was a non-defined benefit scheme, in the UPS the guaranteed pension is 50 per cent of the average basic salary received during the last 12 months before retirement.
It also allows for a reduction in the number of Years of serviceThe minimum number required to obtain this benefit is 10. The SAI also covers family pensionswhere 60 percent of the worker’s basic salary is granted to the family in the event of the worker’s death.
A guaranteed minimum pension of Rs 10,000 per month has also been agreed for employees with a working life of at least 10 years. Indexation of UPS-insured pensions, family pensions and minimum pensions is intended to protect against inflation and link such pensions to an increase in the cost of living.
On retirement, employees are entitled to a gratuity payment equivalent to 1/10 of the monthly emolument, including salary and dearness allowance, for every six months of service, in addition to their pension.
This scheme also ensures family security by providing 60 per cent of the pension to the employee’s family in case of the latter’s death, and ensures a minimum pension for those with adequate years of service. Unlike the Guaranteed Pension Scheme proposed by the Andhra Pradesh government, which promised only 33 per cent of the last salary earned, UPS offers a much more comprehensive and superior scheme. pension package.
National Pension System (NPS)
The National Pension System, launched in January 2004 for public employees and extended to all sectors in 2009, is a voluntary long-term pension system. retirement investment plan governed and regulated by the Pension Fund Regulatory and Development Authority.
NPS introduces the possibility of much higher growth in investment and also flexibility in withdrawing funds as on retirement, the subscriber can withdraw a maximum of 60 per cent of the accumulated savings tax-free and the remaining 40 per cent has to be mandatorily utilised to purchase an annuity.
It has two tiers, Tier I, where withdrawals are restricted to retirement, and Tier II, which offers more flexibility in accessing the funds. In addition to that, the NPS offers tax benefits under Section 80 CCD of the Income Tax Act through deductions of up to Rs 1.5 lakh, making the plan a good option for retirement planning.
Old pension system (OPS)
Under the old pension system, government servants They were granted a pension equivalent to 50 per cent of the last basic salary drawn, to which a DA was added to compensate for the inflationary increase. The entire scheme was provided by the government. The OPS also included a gratuity of up to Rs 20 lakh and continuation of pensions of the retirees to their dependents. As for the pensions provided under the OPS, they were a burden on the exchequer as no amount was deducted from the salaries of the employees as pension contributions.
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