In August 2024, the union cabinet approved Unified Pension Scheme or UPS for the central government employees. Later Unified Pension Scheme or UPS may be adopted by the states and Public sector units (PSU) as well.
Presently Old pension scheme (OPS) or New pension scheme (NPS) are offered to the central govt. employees, state govt. employees and PSU employees. Under Old pension scheme (OPS), the employees get the guaranteed pension according to the last basic withdrawn. Under New pension scheme (NPS), the employees get the pension as per the return offered by the NPS fund managed by the fund managers, which varies as per the market conditions.
Comparison of Old pension scheme (OPS), New pension scheme (NPS) and Unified Pension Scheme (UPS):
| Old pension scheme (OPS) | New pension scheme (NPS) | Unified Pension Scheme (UPS) | |
| Pension received | 50% of last basic & DA | up to 60% commutation + 40% to invest in Pension annuity plans | 50% of the average basic pay drawn over the last 12 months |
| No. of Years to serve for full pension | Minimum 20 years | NA | Minimum 25 years |
| Minimum Pension | Rs. 9000 | NA | Rs. 10000 |
| No. of Years to serve for minimum pension | Minimum 10 years | NA | Minimum 10 years |
| Family Pension | 60% of last Pension | NA | 60% of last Pension |
| Employee’s contribution | No contribution | 10% of (Basic + DA) | 10% of (Basic + DA) |
| Employer’s contribution | Full responsibility | 14% of (Basic + DA) | 18.5% of (Basic + DA) |
| GPF facility | Yes | No | No |
| Commutation allowed | Full amount of GPF | up to 60% of the amount | The employee can withdraw up to 60% of the individual pension corpus |
| Gratuity | Yes | Yes | Yes |
| Inflation indexation | DR revised 2 times a year, based on AICPIN-IW | No | DR revised 2 times a year, based on AICPIN-IW |
| Lump sum amount on Retirement | 100% of Employee’s contribution | No | 1/10th of monthly emoluments (pay + DA) for every completed six months of service |
| VRS | 50% of last basic & DA (minimum 20 years of service) | NA | Pension at the age of 60 |
| For employees of | Central govt. employees, State govt. employees | Both government and private sector employees | Central govt. employees, State govt. employees |
Case Study I –
When the person Mr. X retires from central govt. service or state govt. service after 35 years under OPS, old pension scheme:
The person has not contributed any amount for pension. It is completely the Govt.’s responsibility. The minimum number of years should be 20 years to get pension. The minimum pension under OPS is Rs. 9,000.
- Assume the last salary drawn Basic – Rs. 1,00,000
- Dearness Allowance – 53% of Basic – Rs. 53,000
- So, he will receive pension – 50% of Last salary drawn basic + Dearness Relief = Rs. 50,000 + 28,090 (53% of 50,000) = Rs.78,090
When the person Mr. X retires from central govt. service or state govt. service or Private companies after 35 years under NPS, New pension scheme:
The person has contributed 10% of Basic + DA, for pension. The employers’ (Govt.) contribution is 14% of Basic + DA, for pension. These both amount will be managed by Pension Fund Regulatory and Development Authority (PFRDA) and invested in the Govt. bonds, equity, mutual fund. At the time of retirement, 60% of the final amount can be commuted tax-free, while 40% amount have to be used for buying annuity plan to get monthly pension.
- Assume the starting salary drawn Basic – Rs. 50,000
- Dearness Allowance – 53% of Basic – Rs. 26,500
- Employees’ contribution monthly – 10% of Basic + DA = 10% of 76,500 = Rs. 7,650
- Employers’ contribution monthly – 14% of Basic + DA = 14% of 76,500 = Rs. 10,710
- Combined amount to invest for pension fund monthly – Rs. 18,360
- Assuming investment increases by 5% every year and expected return on investment of 10% annually, the Total amount after 35 years = ₹11,53,18,702
- Now, if you buy 100% annuity plan, what will you get monthly pension as on 25.09.2024 (it will change with time), check this (source:NPS):
When the person Mr. X retires from central govt. service or state govt. service after 35 years under UPS, Unified pension scheme:
The person has to contributed 10% of Basic + DA, for pension. The employers’ (Govt.) contribution will be 18.5% of Basic + DA, for pension. The minimum number of years should be 25 years to get pension. The minimum pension under UPS is Rs. 10,000.
- Assume the last year average salary drawn Basic – Rs. 1,00,000
- Dearness Allowance – 53% of Basic – Rs. 53,000
- So, he will receive pension – 50% of Last year average salary drawn basic + Dearness Relief = Rs. 50,000 + 28,090 (53% of 50,000) = Rs.78,090
Contribution for pension under UPS by employee and employer:
- Assume the starting salary drawn Basic – Rs. 50,000
- Dearness Allowance – 53% of Basic – Rs. 26,500
- Employees’ contribution monthly – 10% of Basic + DA = 10% of 76,500 = Rs. 7,650
- Employers’ contribution monthly – 18.5% of Basic + DA = 18.5% of 76,500 = Rs. 14,152
- Combined amount to invest for pension fund monthly – Rs. 21,802
- Assuming investment increases by 5% every year and expected return on investment of 10% annually, the Total amount after 35 years = ₹13,69,37,818
Disclaimer: Kindly refer official website for any inconsistencies in rules, understandings and clarification.