The NDA cabinet of the Centre has approved the reform in the New Pension Scheme implemented 21 years ago by the Atal Bihari Vajpayee government. Parallel to this, the Centre has announced to introduce a Unified Pension Scheme. It was approved in the Union Cabinet meeting on Saturday and there is a plan to implement it from 1 April next year.
For example, till now, where the employee had the option to choose between Old Pension Scheme and New Pension Scheme, now he will get the option to choose between New Pension Scheme and Unified Pension Scheme, under which a provision has been made to give the employees a lifetime pension equal to 50 per cent of their last basic salary.
Also read: If you leave the job after 10 years, you get 10 thousand rupees every month, this much pension on 25 years of job… Five big things about UPS
What is the difference between UPS, NPS and OPS?
The Unified Pension Scheme, which is likely to be implemented by the Central Government, will provide many benefits to the employees, such as hike in dearness relief as per inflation, guarantee of immediate payment of 60 per cent of pension to the family members on the death of the employee and provision of lump sum superannuation along with gratuity.
If you are working under the central government and you have completed ten years of service, then you will get at least ten thousand rupees per month as pension. For example, till now there were two schemes for pension in the country – Old Pension Scheme (OPS), New Pension Scheme (NPS) and now the third will be Unified Pension Scheme (UPS). Let us understand the difference between OPS, NPS and UPS and their other provisions.
Unified Pension Scheme (UPS)
Unified Pension Scheme or UPS is a new initiative started by the NDA government at the center. It will work like the Old Pension Scheme and at the same time some important benefits from the New Pension Scheme have also been included in it.
Why would UPS be any different?
Amount of pension: Retired people will get 50 percent of their basic salary received in the last 12 months of their job before retirement as pension. Generally, only those who have completed 25 years of service will get the full benefit of this. If it is less than this, for example, if you have completed your job between 10-25 years, then your pension will be adjusted accordingly.
Family Pension: If the employee dies, then in this situation his family will get 60 percent of the pension. This amount will be given to the family immediately after the death of the employee.
Minimum pension: If an employee has completed at least 10 years of service, he will also get at least Rs 10,000 per month as pension.
How much contribution will have to be paid: Government employees will contribute 10% of their salary to UPS. Now, just as the government’s contribution in the old pension scheme was 14%, it will now be increased to 18.5% under UPS.
When will UPS be implemented: UPS is going to be implemented from April 1, 2025, about which the Central Government says that this will provide more financial security to the employees.
| Scheme | Employee Contributions | Government contribution | Major provisions |
|---|---|---|---|
| OPS | None (Fully Government Funded) | None (as it is fully funded by the government | Guaranteed 50% of last salary; tax-free pension |
| NPS | 10% of basic pay and DA | 14% of basic pay and DA | 60% tax free withdrawal during retirement |
| UPS | 10% of basic pay | 18.5% of basic pay | 50% of average basic pay after 25 years; minimum pension of ₹10,000 |
New Pension Scheme (NPS)
The New Pension Scheme was launched by the Atal Bihari Vajpayee government in 2004. It was planned to be implemented in place of the Old Pension Scheme but it was opposed and was being opposed for a long time.
For example, under NPS, employees were also made to contribute towards pension. Some more provisions were made in this, such as you could withdraw 60% of the pension amount and tax was levied on 40% of the amount as per the salary bracket of the concerned employee.
Special in NPS: The pension received under the New Pension Scheme depends on the contribution made by the employee during his job, and there is a provision to give it on the basis of market performance.
Contribution to NPS: Government employees contribute 10% of their basic salary and DA. The government contributes 14% to this. Any employee can open an account in NPS, in which they can contribute a minimum of Rs 500.
There are two types of accounts in NPS
Tier I: This is a mandatory account, in which tax benefits are available on retirement.
Tier II: This is an Optional Contribution Account from which employees can withdraw their pension amount at any time, but it does not provide any tax benefit.
Export: Employees can withdraw 60 per cent of the pension amount as lump sum accumulated corpus on retirement, the remaining amount can be used to purchase annuity for payment of regular pension.
Tax Benefits: If your account comes under NPS, and you withdraw 60 per cent of the amount in lump sum, then there will be no tax on it, but the remaining 40 per cent will be taxed according to your salary bracket.
Old Pension Scheme (OPS)
Under the old pension scheme, there is a provision for the government to provide monthly pension to government employees on the basis of their last salary. For example, under this scheme, employees did not have to make any contribution towards pension.
However, in 2004, the then Vajpayee government launched the New Pension Scheme in its place, which was also opposed a lot. Till now, promises have been made in elections to re-implement OPS.
The special feature of OPS
There was a provision to give the employee a pension equal to 50 percent of his last salary at the time of retirement.
Contribution: The entire cost of pension was borne by the Central Government. This means that under OPS, employees did not have to make their own contribution towards pension.
Eligibility: OPS is applicable only to those government employees who joined the job before January 1, 2004.
Adjustment: The pension is adjusted from time to time according to the changes in dearness allowance (DA), which is linked to inflation.
Tax: There was no tax on the pension received under OPS. However, provision for tax has been made in NPS and UPS.
