The government employees have been advocating for either modifications to the New Pension Scheme (NPS) or the restoration of the Old Pension Scheme (OPS). The opposition has also leveraged this matter to gain public support. In reaction to these demands, the Modi administration has taken significant measures. Recently, the Union Cabinet, under the leadership of Prime Minister Modi, sanctioned a new pension initiative known as the Unified Pension Scheme (UPS) applicable from 1 April 2025 onwards.
This scheme stipulates that central government employees will receive 50 percent of the average basic salary calculated over the last 12 months preceding retirement, contingent upon a minimum qualifying service of 25 years. Furthermore, the scheme encompasses a range of additional advantages, including guaranteed pensions, family pensions, a minimum assured pension, inflation-adjusted benefits, and supplementary payments alongside gratuity. It is essential to examine the distinctions among the Unified Pension Scheme (UPS), the New Pension Scheme (NPS), and the Old Pension Scheme (OPS).
What is Unified Pension Scheme (UPS) ?
In the UPS framework, the obligation to finance the pension does not rest with the employee, and there exists a guarantee for a defined pension. Employees are entitled to receive 50 percent of their average basic salary calculated from the twelve months preceding their retirement as their pension benefit. In the unfortunate event of an employee's death prior to retirement, the spouse will receive 60 percent of the pension that would have been payable. For employees with shorter tenures, UPS ensures a minimum pension of Rs 10,000 per month. Furthermore, UPS incorporates inflation indexation, akin to the dearness allowance, to adjust the assured pension, family pension, and minimum pension in accordance with prevailing inflation rates. In addition to the gratuity, UPS offers a lump sum payment upon retirement, where employees are entitled to receive 1/10th of their monthly salary (including pay and dearness allowance) for every six months of service as a one-time payment.
What is New Pension Scheme ?
Under the National Pension System (NPS), a deduction of 10 percent from the employee's basic salary, along with the Dearness Allowance (DA), is allocated to the pension fund. The NPS is associated with the stock market, indicating that the returns are influenced by market volatility and carry inherent risks. Additionally, it encompasses specific tax regulations. To qualify for a pension upon retirement, it is required that 40 percent of the NPS corpus be allocated to annuities. Unlike the Old Pension Scheme (OPS), the NPS does not guarantee a fixed pension amount post-retirement; rather, the pension is contingent upon the performance of the fund. Furthermore, the NPS does not provide adjustments for Dearness Allowance (DA) after retirement.
The Pensions are big government burden, as the money which can be used for creating assets for future generations are given to people who are not generating economy now.
What is the Old Pension Scheme (OPS) ?
Under the Old Pension Scheme (OPS), retirees are entitled to receive a pension equivalent to 50 percent of their final salary. The OPS also incorporates a feature for the General Provident Fund (GPF), allowing employees to allocate a portion of their salary, which is subsequently returned with accrued interest upon retirement. Additionally, employees under OPS may qualify for a gratuity payment of up to Rs 20 lakh. Pension disbursements under OPS are facilitated through the government treasury, ensuring direct funding from the government. In the unfortunate event of a retired employee's demise, their family members will continue to receive the pension benefits. Notably, there are no deductions from the employee's salary for pension contributions under OPS. Furthermore, the scheme provides for the disbursement of Dearness Allowance (DA) biannually, which aids in adjusting the pension in line with inflation.
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