The Unified Pension Scheme (UPS) is a new central pension scheme announced by the Narendra Modi government last year. The scheme, to be rolled out from April 1, aims to give a fixed pension security to government employees. This scheme under the National Pension System (NPS) is primarily designed for central government employees, but in the future, it can also be extended to state government employees.
If you are in a government job and are already in the NPS, then you will get the option to choose UPS.
Under UPS, if you have worked for at least 25 years, you will get 50% of the average basic salary of the last 12 months before retirement as a pension. If your service is more than 10 years, you will get a pension of at least Rs 10,000 per month.
In case the pensioner dies, the family will get 60% of the last pension as a family pension.
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What is the National Pension System (NPS)?
In 2004, the government discontinued the Old Pension Scheme (OPS) and introduced the NPS. Initially, it was only for government employees, but in 2009, it was opened to all citizens, NRIs, self-employed, and unorganised sector workers.
How does NPS work?
Employees get a fixed amount deducted from their salary and invest it in market-based investment schemes.
At the time of retirement, 60% of the invested funds can be withdrawn in a lump sum, and the remaining 40% has to be mandatorily invested in an annuity, which gives you a monthly pension.
Unlike OPS, the NPS gives no guarantee of any fixed amount as a pension, and the amount depends entirely on the performance of the stock market and other investments.
What was the Old Pension Scheme?
Before NPS, government employees used to get a pension after retirement under the Old Pension Scheme.
Under OPS, all government employees used to get a pension based on their last salary. It was fully funded by the government—that is, the employee did not have to make any contribution. Under the old pension system, there was a facility to increase dearness allowance (DA) twice every year. After the death of the pensioner, the family also used to get a pension.
But the government felt that this system was not financially sustainable in the long run, so it was discontinued in December 2003, and the NPS was introduced. However, many state governments later reintroduced the OPS after labour unions and employee bodies started staging protests and agitations across the country. But the Centre did not yield to their demand for the restoration of the OPS.
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Which is better among UPS, NPS and OPS?
UPS: It is a mix of OPS and NPS – it gives fixed pension, minimum pension guarantee, and family pension.
Both the government and the employee have to contribute so that the fund remains strong.
This is better for those who want a guaranteed and stable pension.
NPS: The government does not give any guarantee in this, but there is a possibility of getting more returns due to good market performance.
Those who understand investment can benefit more in the long run. The risk is high because the pension amount depends on the market.
OPS: This was the most beneficial, because in this, the government used to give full pension, and DA also increased.
But the government is not in the mood to bring it back now, as it may increase the government’s financial burden.
Which pension option is right for you?
If you want a fixed monthly pension and do not want to take any market risk, then UPS can be a good option for you.
If you have 10-20 years left for retirement and want to get higher returns than the market, then NPS may be better for you.
If OPS comes back, employees will be happier because the scheme gives an unconditional guarantee of a fixed pension along with two DA hikes every year.
Thus, UPS is a safe pension option, while NPS has the possibility of higher returns but there is no guarantee. Therefore, you should take a decision based on your risk tolerance and financial needs.
