UPS vs NPS vs OPS
What is term pension, Assured pension or Fixed pension?
Pension Guarantees retirees with a specific sum of money regularly post-retirement, ensuring financial stability and security.
UPS vs NPS vs OPS
(i). Unified Pension System or UPS
Recently on 24th-Aug’24 The Narendra Modi government approved the Unified Pension Scheme to replace the Old Pension Scheme in FY2025-26, combining the benefits of both previous Old Pension Scheme and the features of the New Pension Scheme.
High Level Understanding about UPS Scheme
New scheme for Central government employees guarantees 50% of last 12 months’ salary as pension, with extra inflation-linked increments for those serving over 25 years.
A way, The pension was reformed as UPS
Ashwini Vaishnaw stated that government employees requested NPS reform. PM Modi appointed a committee led by T V Somanathan in April 2023. After consultations with JCM, the committee suggested the Unified Pension Scheme. The Union Cabinet has now approved the scheme.
Let’s Understand and compare the key features of OPS, NPS and UPS in detail.
Key Features of Unified Pension Scheme or UPS
1. Five pillars: Unified Pension Scheme has five pillars – Assured Pension, Assured Family Pension, Assured Minimum Pension, Inflation Indexation, Gratuity.
2. Guaranteed Fixed Pension: Unified Pension Scheme guarantees fixed pension amount unlike New Pension Scheme which doesn’t ensure fixed pension.
3. Get 50% average before retirement: Individuals can receive 50% of their average basic pay from the last 12 months before retirement after 25 years of service.
4. Assured Pension: The UPS awards a fixed pension of 50% of the last 12 months’ average basic pay to individuals with 25 years of service. Those with fewer years will receive a proportionate amount, with at least 10 years of service needed to qualify for the pension.
5. Assured Family Pension: Family pension equals 60% of basic pay. Issued quickly after employee’s death in retirement benefits package.
6. Assured Minimum Pension: UPS ensures a minimum monthly pension of Rs 10,000 for individuals with at least 10 years of service.
7. Inflation Indexation: The indexation benefit applies to assured pension, family pension, and minimum pension to adjust for inflation and changes in the cost of living over time. Reviews and adjustments are made periodically to maintain their real value.
8. Gratuity: Upon retirement, employees receive a lump-sum payment called gratuity, calculated as 1/10th of monthly emolument (pay + dearness allowance) per 6 months of service. This payment does not affect the assured pension amount.
9. Financial Security: UPS provides financial security to employees post their death, transferring 60% of pension as a family pension. It mirrors the benefits of OPS and ensures a minimum pension of Rs 10,000 per month after 10 years of service.
10. Unlike Andhra’s Guaranteed Pension Scheme: The UPS is not the same as the proposed Guaranteed Pension Scheme in Andhra Pradesh, which aimed to provide 33% of the last drawn salary as pension.
(ii). National Pension System or NPS
About NPS: NPS was Established in 2004, the National Pension Scheme (NPS) was initially for government employees but expanded to all sectors in 2009. Governed by PFRDA, it is a voluntary retirement investment program.
key Features of National Pension System or NPS
1. Pension and Investment Growth: NPS provides pension and investment growth. Subscribers can withdraw part of savings at retirement, with the rest distributed as monthly income for a stable post-retirement income stream.
2. National Pension Scheme has two tiers: Tier 1 for retirement savings, Tier 2 for early withdrawals, offering flexibility to investors.
3. 60 and 40 withdrawal: Upon retirement, individuals under NPS can withdraw 60% of their accumulated corpus tax-free. The remaining 40% is used to buy an annuity, providing a pension equivalent to about 35% of their pre-retirement salary.
4. Tax benefits: Investing in NPS comes under Section 80 CCD of Income Tax Act for tax benefits up to Rs 1.5 lakh.
5. 60% withdraw on Retirement: Retirees can withdraw 60% of NPS savings as tax-free income, making it a good ideal for retirement planning. Lump sum payout option increases its attractiveness.
(iii). OLD Pension Scheme or OPS
About OPS or Old Pension System
OPS has its roots in British rule, with the Lee Commission recommending half the salary paid as pension after retirement for recruits in India in 1924.
Key Features of Old Pension System or OPS
1. Pension of 50% of Basic Pay: The pension for government employees under OPS and UPS is 50% of their last basic pay. Additionally, DA is provided to adjust for cost of living increases. OPS mirrors UPS in pension calculations for central and state-level employees.
2. DA: Government raises Dearness Allowance, also increases Dearness Relief for retirees.
3. GPF: OPS ensures employees receive 50% of their salary as a pension upon retirement. OPS also offers the General Provident Fund (GPF) where employees can save a portion of their income, repaid with interest upon retirement.
4. 20 Lakh Gratuity: Employees in OPS are/were entitled to up to Rs 20 lakh gratuity.
5. Government Handlers: OPS facilitates payments through the government treasury, ensuring pensions are government-financed. If a retired employee dies, their family keeps receiving pension benefits. Notably, no deductions are taken from salaries for pensions in OPS.
UPS – a Blended solution of NPS and OPS
(i). UPS combines OPS and NPS benefits for a comprehensive pension scheme with multiple advantages included.
(ii). UPS offers OPS features like assured pension, inflation indexation, family pension, and minimum pension for post-retirement security and stability.
(iii). UPS incorporates a contributory, fully funded scheme similar to NPS, allowing members to contribute to their pension fund for a personalized and potentially higher payout at retirement.
UPS vs NPS vs OPS: Link to pension payment enquiry :
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