Context

• The Central Government has announced the Unified Pension Scheme (UPS) for Central employees on August 24, 2024.

What is the Unified Pension Scheme?

• The Government of India has approved a new pension policy, the Unified Pension Scheme (UPS), for central government employees.
• Implementation: This pension scheme will be effective from April 1, 2025.
• It is designed to replace the existing pension schemes, Old Pension Scheme (OPS) and New Pension Scheme (NPS).
• Main Aim: To provide government employees with a more secure and equitable pension system. 

Key features of UPS:

• Assured pension: Employees with at least 25 years of service will receive a pension equal to 50% of the average basic pay of the last 12 months before retirement.
• Assured family pension: On the death of the employee, his family will receive a pension equal to 60% of the employee's pension.
• Assured minimum pension: Employees with at least 10 years of service will receive a minimum pension of Rs 10,000 per month.
• Inflation adjustment: Pension amounts will be adjusted to maintain their purchasing power.
• Lump sum payment: Employees can also receive a lump sum payment on retirement.

Old Pension Scheme (OPS)

• It was discontinued in 2004 and New Pension Scheme (NPS) was introduced.

Key features:

• Defined Benefit Plan: OPS was a defined benefit plan, meaning employees were guaranteed a specific pension amount upon retirement based on their salary and years of service.
• Pension Formula: The pension amount was calculated as a percentage of the average salary of the last 10 years of service multiplied by the years of service.
• No Market Risk: OPS was not linked to market fluctuations, meaning employees were protected from the risks associated with investing in stocks and other assets.

New Pension Scheme (NPS)

• It is a voluntary defined contribution pension plan, which means employees contribute a portion of their salary to the pension fund and the government also contributes an equal amount.
• The accumulated funds are invested in various assets including stocks, bonds and other investments.

Key features:

• Market Risk: NPS also involves market risk, which means the value of the pension fund may rise or fall depending on the performance of the investments.
• Portable: NPS is portable, which means employees can transfer their pension benefits from one job to another.