The Unified Pension Scheme (UPS) is a new pension scheme approved by the Narendra Modi-led NDA government. The scheme was announced on August 24 and is expected to benefit around 23 lakh government employees. It will be implemented from April 1, 2025. The scheme came after the NDA government faced criticism for abolishing the old pension scheme (OPS). UPS combines the benefits of OPS with new features. Prime Minister Narendra Modi lauded the scheme on X, saying, “The Unified Pension Scheme ensures dignity and financial security for government employees, aligning with our commitment to their well-being and a secure future.” UPS Versus NPS know key difference between choosing.

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A Brief History: Until December 2003, the OPS scheme was applied to government employees. In January 2004, then Prime Minister Atal Bihari Vajpayee’s government brought in a new scheme called the National Pension System (NPS) to lower the government’s treasury burden.

But the love of “fixed” vs “market-determined” pension created panic, leading to protests against it. The Modi government formed a committee under the leadership of TV Somanathan in April 2023, which deliberated the issues with the finance secretary, political leaders, and hundreds of employee unions of every state and made recommendations to the cabinet for changes in the NPS. On August 24, 2024, the government approved the UPS scheme and left the door open for the state governments to adopt it. Most BJP-led states are expected to embrace it.

Here are the key differences between UPS and NPS:

Pension Amount: “In the case of UPS, employees will be given 50 per cent of the average basic pay of the last 12 months before retirement as a pension. Simply put, if an employee used to get a basic pay of Rs 50,000 in the last year of his job, he will get a pension of Rs 25,000 every month after retirement, the same as OPS. In NPS, nothing of this assurance is given. In NPS, the pension depends on the share/debt market performance,” says Madhupam Krishna, Securities and Exchange Board of India (Sebi)-registered investment advisor (RIA) and chief planner, WealthWisher Financial Planner and Advisors.

Family Pension: When it comes to UPS, the scheme provides 60 per cent of an employee’s pension to his family in the event of his death. In the case of NPS, the accumulated corpus and annuity plans during retirement decide the family pension.

Contributions: “Under NPS, 10 per cent of the employee’s salary and dearness allowance (DA) is deducted, and the government also deposits 14 per cent of the employee’s salary into the fund. The employee can withdraw a part of this fund at any time. Unlike NPS, in OPS, the employee did not have to pay any amount from his pocket for pension. But now, under UPS, employees will contribute 10 per cent of the basic salary, and the government will contribute 18.5 per cent. Under NPS, 60 per cent of the fund can be withdrawn, and there is no tax on it. The remaining 40 per cent of the money is invested in an annuity. Since this amount is being invested in the stock markets, it can increase or decrease,” adds Krishna.

Fixed Pension Plan: OPS was a fixed pension plan. The employees used to get a fixed 50 per cent of their last salary as a pension from the government treasury. Apart from this, the government also gave the employees a dearness allowance every six months. This was stopped under NPS. In UPS, the government can also change its share by reviewing every three years, but no change will be made in the 10 per cent share of the employees.

Gratuity: No separate announcement has been made in UPS regarding gratuity and general provident fund. However, it has been said that after completing every six months of service, a lump-sum amount will be given by adding 10 per cent of the total salary and DA. Gratuity is also called a lump-sum amount.

Taxation: In the case of NPS, contributions are tax-deductible. However, up to 60 per cent withdrawal at maturity is tax-free, but pension payouts are taxed based on the income slabs, which impacts the net benefit. For UPS, pension income is expected to be taxed at income tax rates.

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Medical reimbursement and arrears have remained the same. Both these benefits were being given under NPS in the same way as in OPS.

Here’s a table illustrating the key differences between UPS, OPS, and NPS:

Source: Wealth Wisher Financial Planner and Advisors