Unified Pension Scheme and How It is Different from NPS

Posted on Thursday, January 23rd, 2025 | By IndusInd Bank

The Unified Pension Scheme (UPS) was introduced by the Government of India in August 2024 and is expected to be fully implemented by April 2025. 

This scheme is designed to offer central government employees a more secure retirement by offering an assured pension during their golden years. With its salient features, such as inflation indexation, the UPS proves to be a worthy competitor to its counterpart, the National Pension Scheme. Government employees who have joined the public sector after 2004 and are covered under the NPS can opt for the UPS. 

If you are wondering which scheme should you opt – UPS vs NPS – for a worry-free retirement, here is a guide to help you choose. 

Unified Pension Scheme: Meaning & Features

First, let’s understand UPS in detail. 

· Meaning & Scope of the Scheme:

The Unified Pension Scheme (UPS) is a new pension plan for an estimated 23 lakh central government employees. If state governments also adopt UPS (Maharashtra already has, in August 2024), the list of UPS beneficiaries can go up to 90 lakh employees. 

This scheme is designed to provide fixed pension payouts while retaining some of the flexibility offered by NPS.

· Contribution to the Scheme:

UPS is scheduled to take effect from April 2025. Under this scheme, employees contribute 10% of their basic salary plus dearness allowance (DA). The government contributes 18.5% + DA.

A major difference between NPS and UPS is that the former offers a government contribution of 14%. 

· Eligibility:

To be eligible for UPS, employees must have completed at least 10 years of government service.

· Assured Pension Benefits:

The UPS offers an assured pension equal to 50% of the average basic pay over the last 12 months before retirement. This is applicable if the employee has served for at least 25 years. 

Employees who retire with less than 25 years of service receive a proportionate pension, based on their service duration. 

· Assured Minimum Pension:

For those retiring after just 10 years of service, the scheme guarantees a minimum pension of ₹10,000 per month.

· Assured Family Pension:

In the event of the pensioner’s death, the surviving spouse or eligible dependents receive 60% of the retiree’s pension. This ensures continued financial support for the family post-retirement.

· Lump-Sum Payment on Superannuation:

Upon retirement, employees under the UPS are entitled to a lump-sum payment. This payment will be equivalent to one-tenth of their monthly emoluments for every six months of service. This does not affect the pension amount. 

· Inflation Indexation:

The UPS adjusts the pension amounts based on the All India Consumer Price Index for Industrial Workers (AICPI-IW). Thanks to this feature, the pension retains its value despite inflation.

Now that you have an idea of what NPS is, let’s understand the differences between NPS and UPS. 

How is the Unified Pension Scheme Different from NPS?

When comparing NPS and UPS differences, here are the key factors you need to consider:

Also Read: Mastering the Art of Long-Term Savings- A Complete Roadmap for Financial Success

Conclusion

The Unified Pension Scheme (UPS) provides a secure and predictable pension solution for government employees. In the UPS vs NPS debate, while NPS may lead to potentially higher returns due to the market-linked investments, UPS focuses on assured benefits and inflation protection. 

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Disclaimer: The information provided in this article is generic and for informational purposes only. It is not a substitute for specific advice in your circumstances. Hence, you are advised to consult your financial advisor before making any financial decision. IndusInd Bank Limited (IBL) does not influence the views of the author in any way. IBL and the author shall not be responsible for any direct/indirect loss or liability incurred by the reader for making any financial decisions based on the contents and information.