Unified Pension System, NPS or Old Pension System: which is more beneficial?

Comparison between UPS, NPS and OPS: For a long time, government employees have been demanding a modification of the New Pension System (NPS) or restoration of the Old Pension System (OPS). The Opposition was also using this issue to garner support. In response, the Modi government has taken decisive steps. On Saturday, the Union Cabinet headed by Prime Minister Modi approved a new pension scheme called the Unified Pension System (UPS). Under this scheme, 50 per cent of the average basic pay for the last 12 months prior to retirement is payable for a minimum service of 25 years. Besides, the scheme offers several other benefits such as assured pension, assured family pension, assured minimum pension, inflation-linked indexation and additional pay in addition to gratuity. Let us explore the differences between the Unified Pension System (UPS), the New Pension System (NPS) and the Old Pension System (OPS).

Old pension system (OPS)

• According to PAHO, 50 percent of an employee’s salary at the time of retirement is allocated to a pension.
• The OPS includes a provision for the General Provident Fund (GPF), where employees can contribute a portion of their salary, which is then returned with interest at the time of retirement.
• At OPS, employees are eligible to receive a gratuity amount of up to Rs 20 lakh.
• Payments under the OPS are made through the government treasury, ensuring that pensions are funded directly by the government.
• In the event of the death of a retired worker, his or her family continues to receive the pension amount.
• There is no deduction from the worker’s salary for a pension under the OPS.
• The PAHO includes a provision to receive the Dearness of Living Benefit (DA) every six months, which helps adjust the pension according to inflation.

New Pension System (NPS)

• Under NPS, 10 per cent of the employee’s basic pay plus dearness allowance (DA) is deducted for the pension fund.
• NPS is linked to the stock market, which means that returns are subject to market fluctuations and it is not entirely risk-free. It also comes with tax provisions.
• To receive a pension upon retirement, 40 per cent of the NPS fund must be invested in annuities.
• NPS does not offer a guaranteed fixed pension amount after retirement; the pension depends on the performance of the fund.
• Unlike OPS, NPS does not provide cost of living allowance (DA) adjustments after retirement.

Unified Pension System (SPU)

• At UPS, the responsibility for funding the pension does not lie with the employee and there is a provision for an assured pension.
• Employees will receive as a pension 50 percent of their average basic salary for the 12 months prior to retirement.
• If an employee dies before retirement, 60 percent of the corresponding pension will be provided to the spouse.
• For those with a shorter service period, UPS guarantees a minimum pension of Rs 10,000 per month.
• The SAI includes an inflation indexation, similar to the dearness allowance, to adjust the insured pension, the family pension and the minimum pension according to inflation rates.
• In addition to the bonus, UPS offers a lump sum payment upon retirement. For every six months of service, employees receive one-tenth of their monthly salary (salary + DA) as a lump sum payment.

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