Money-Wise: India introduces Unified Pension Scheme. Will it be more beneficial than NPS & OPS?

In a major overhaul to the pension system of India, the Union government announced a new Unified Pension Scheme (UPS) that assurespension to central government employees, along with other benefits, post-retirement.

The decision was taken in the wake of the central government employees' long-pending demand to bring reforms in the National Pension Scheme (NPS). The government will implement the UPS on April 1, 2025.

In this week's Money-Wise, we try to analyse the newly rolled out Unified Pension Scheme and how it is different from the previous pension schemes.

UPS: A mixed basket of all goodness of NPS and OPS?

The newly-introduced Unified Pension Scheme stands a little ahead of the National Pension Scheme (NPS) as it ensures fixed pensionto retirees, which was a major drawback of the NPS.

The assured pension will be 50 per cent of the average basic salary drawn by a governmentemployee in the last 12 months after serving for a minimum of 25 years.

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Apart from the assured pension, the UPS offers inflationindexation, an assured minimum pension of Rs 10,000 per month and a family pension, which were missing in the NPS. The family pension, which was part of the OPS (Old Pension Scheme), will be 60 per cent of the pension last received by the retiree.

The UPS also has the feature of lumpsum payment at superannuation, along with gratuity, which will be calculated as 1/10th of the monthly emolument plus dearness allowance for every six months served in the government.

A key feature borrowed from the NPS is that of a contributory and fully funded scheme, which means that the members can contribute towards their pension fund and ensure a high pension payout upon retirement.

Here's how UPS differs from NPS and OPS in key features

Who all are eligible for UPS?

Unde UPS, government employees will be eligible for a fixed pension amount after completing at least 10 years of service and will receive a pension of 50% of the average basic pay after completing 25 years.

All those employees who have retired under the NPS from 2004 onwards are also eligible and can avail UPS. All those who are currently under NPS and have opted for Voluntary Retirement Scheme (VRS) under NPS will also have the choice of joining the UPS if they are government employees, which will then remain unchanged.

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However, the government employees are still free to remain under the NPS.

UPS vs NPS: Which is a better investment for employees?

Those who subscribe to the UPS will get a guaranteed pension amount, however, the pension amount under NPS fluctuates because the investment is made in the market-linked security schemes.

Although UPS gives an assured pension, NPS can at times provide a higher pension amount when there are higher returns in the market-linked investments, though the situation can be the exact opposite if the market is down.

UPS is more suitable for employees who want a guaranteed pension amount without any risk and NPS is for those who aim for higher returns and are willing to take risks by making market-based investments.