Unified Pension System (SPU) vs. Old Pension System (SPA): Main Differences

The approval by the Indian government of the Unified Pension System (SPU) It has sparked considerable interest, particularly among government employees. While the UPS integrates features of the old pension system (OPS), it introduces several key changes that affect employees in ways that are both beneficial and challenging. While many of the benefits of the new UPS appear similar to those of the OPS, there are also major differences. Let’s take a look.

The pre-2004 retirement pension system provided a defined benefit pension equal to 50% of the last salary earned, fully funded by the government and requiring no employee contributions. This system provided a secure and predictable retirement income, but imposed a significant financial burden on the government.

The new UPS scheme, which will come into effect from April 1, 2025, incorporates elements of the OPS while introducing a contributory model. Employees will now contribute 10% of their salary to their pension, as does the NPS, while the government will contribute 18.5%. This change spreads the financial responsibility, which is a departure from the non-contributory model of the OPS.

The UPS also enhances retirement benefits by guaranteeing a pension based on 50% of the average basic salary of the last 12 months before retirement, similar to the OPS. Additional features of the UPS include an assured minimum pension, inflation protection and a lump sum payment at the time of retirement, adding layers of financial security.

Pension Benefits Comparison:

Minimum pensionUPS guarantees a minimum pension of Rs 10,000 per month for employees with at least 10 years of service. In contrast, OPS did not specify a minimum pension amount. However, retirees typically received 50% of their last earned salary, which often exceeded Rs 10,000.

Family pensionUnder the UPS, family pension benefits are set at 60% of the employee’s pension upon death. The OPS also provided a family pension, but usually at a lower percentage of the employee’s pension, making the UPS more generous in this regard.

Indexation for inflation:The SPI includes inflation indexation based on the All India Consumer Price Index for Industrial Workers (AICPI-IW), ensuring that pensions are adjusted for inflation. The OPS included dearness relief for inflation adjustments, but the system was less standardised compared to the AICPI-IW approach of the SPI.

While the UPS offers better benefits than the OPS, including better inflation protection and higher family pension rates, the requirement for employee contributions contrasts with the non-contributory OPS model.