Unified pension system versus national pension system (Image source: iStockphoto)
In a historic decision, the Union Cabinet, headed by Prime Minister Narendra Modi, approved the Unified Pension System (Universal Postal Union) for 23 lakh central government employees. The scheme, which will come into effect from April 1, 2025, offers a significant change from the current National Pension System (National Health Service).
Main features of the Unified Pension System
The UPS guarantees a pension equivalent to 50% of the average basic salary received during the last 12 months before retirement, provided that the worker has completed a minimum of 25 years of service.
For those with fewer years of service, the pension amount will be proportional. In the event of the worker’s death, the family will receive 60% of the worker’s pension, thus ensuring continued financial support for the dependents.
Additionally, the scheme includes a guaranteed minimum pension of Rs 10,000 per month for employees with at least 10 years of service. All pensions will be indexed to inflation based on the All India Consumer Price Index for Industrial Workers (AICPI-W), ensuring that the pension maintains its purchasing power over time.
UPS also offers a lump sum payment at retirement, equal to one-tenth of monthly emoluments (salary plus dearness allowance) for every six months of completed service. This payment is complementary to the pension and does not affect its amount.
Differences between UPS and NPS
The new UPS differs significantly from the current National Pension System. While the NPS is based on a defined contribution model with benefits linked to the accumulated capital and the annuity plan chosen at the time of retirement, the UPS offers a defined benefit based on the employee’s last salary and seniority.
Under NPS, family pensions depend on the accumulated corpus, while UPS ensures a fixed 60% of the employee’s pension for his dependents in case of death.
Employees currently subscribed to the NPS will have the option to switch to the new UPS, which does not require individual contributions, marking a shift towards a more predictable and secure pension structure.
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