The government’s new scheme Unified Pension Scheme (UPS) is sure to benefit 23 lakh central government employees immediately. The aim of this scheme is to fix a fixed pension amount for government employees after retirement. Under UPS, employees will be given a minimum pension after retirement, which will be based on their years of service and their average salary. This scheme is linked to dearness allowance (DA), that is, as inflation increases, the pension amount will also increase. The government’s contribution in UPS will be 18.5%, which is more than NPS’s 14%.
Old Pension Scheme (OPS)
Old Pension Scheme (OPS) was an old system in which employees got a fixed pension based on their last salary. In this scheme, employees were not required to make any kind of contribution, which put a greater financial burden on the government. In OPS, employees got 50% of their last basic salary + dearness allowance as pension. Apart from this, under OPS, employees also got the benefit of increase in dearness allowance after retirement as an increase in pension.
National Pension System (NPS)
NPS is an investment-based pension scheme in which both the employee and the government contribute. The pension amount depends on the performance of the funds invested in the market, i.e. there is no fixed pension in it. The government’s contribution in NPS is 14% and that of the employee is 10%. Tax benefits are also available in this scheme such as tax exemption up to Rs 2 lakh and tax exemption on withdrawal of 60% of the amount.
UPS vs OPS vs NPS:
1. Pension Guarantee – Both UPS and OPS provide a fixed pension, whereas in NPS the pension amount depends on the market performance.
2. Contribution- There was no contribution in OPS, whereas in UPS and NPS, there is contribution from both the employee and the government. The government’s contribution in UPS is 18.5%, which is more than 14% in NPS.
3. Dearness Relief- In both OPS and UPS, the pension increases according to dearness allowance, whereas this facility is not available in NPS.
4. Tax exemption- There are many benefits of tax exemption in NPS, whereas in UPS, nothing has been clarified yet about tax exemption.
In this way UPS is better than NPS in some cases. But it is still inferior to OPS in many cases.
Let us tell you, UPS will be implemented from 1 April 2025. After implementing this scheme, an additional burden of Rs 6,250 crore will increase on the government treasury every year. The government has said that the central government employees will have the right to decide whether they remain in NPS or join UPS. This scheme will be applicable to all those who have retired under NPS since 2004.
