What is Unified Pension Scheme (UPS) How it is different from NPS and OPS

The government has recently introduced the Unified Pension Scheme (UPS) for central government employees. This new scheme is set to be available to current subscribers of the New Pension Scheme (NPS), including retirees, and will take effect on April 1, 2025.

The new Unified Pension Scheme (UPS) was approved on 24th August 2024. This development has captured the attention of government employees across the country, who are eager to understand the features and benefits of this scheme compared to the existing Old Pension Scheme (OPS) and National Pension System (NPS).

What are the key features of UPS?

Assured Pension The scheme provides an assured pension of 50% of the average basic pay drawn over the last 12 months before superannuation, for a minimum qualifying service of 25 years.

For Example Mr A has an average basic pay of ₹50,000 over the last 12 months and has completed 25 years of service.

Assured Pension = 50% of ₹50,000 = ₹25,000 per month.

Pension in case service periods between 10 and 25 years in this situation the pension amount is proportionately reduced for service periods between 10 and 25 years with a minimum guaranteed pension of ₹10,000.

For Example Mr Y has an average basic pay of ₹50,000 over the last 12 months but has only completed 20 years of service.

Service Ratio = 20 years / 25 years = 0.8 (80%)

Assured Pension = 50% of ₹50,000 × 0.8 = ₹20,000 per month.

Average

Completed Years of Service	Pension Amount (% of Last 12 Months Average Salary)
25	50%
24	48%
23	46%
22	44%
21	42%
20	40%
19	38%
18	36%
17	34%
16	32%
15	30%
14	28%
13	26%
12	24%
11	22%
10	20%

Assured Family Pension The scheme ensures that the employee’s family receives 60% of the pension that the employee was receiving immediately before their demise.

For Example Mr Z was receiving a pension of ₹25,000 per month before passing away.

Assured Family Pension = 60% of ₹25,000 = ₹15,000 per month.

Assured Minimum Pension

Feature The scheme guarantees a minimum pension of ₹10,000 per month upon superannuation, provided the employee has completed at least 10 years of service.

Inflation Indexation Pensions, including assured pension, family pension, and minimum pension, are indexed to inflation using the All India Consumer Price Index for Industrial Workers (AICPI-IW).
Lump Sum Payment at Superannuation in addition to assured pension and gratuity. Upon superannuation, employees receive a lump sum payment in addition to gratuity. This payment is calculated as 1/10th of the monthly emoluments (pay + DA) for every completed six months of service.

For Example Mr. X has a monthly emolument of ₹50,000 (including pay + DA) at the time of superannuation and has completed 25 years of service.

Lump Sum Payment = (1/10th of ₹50,000) × (25 ×2)= ₹5,000 × 50 = ₹2,50,000.

This payment is in addition to their assured pension and gratuity.

Investment Employees will contribute 10% of their basic salary and DA, with the government contributing 18.5%. (under NPS it is 14%) The employee’s pension corpus will be split between an individual fund and a pooled fund.
Shifting option from NPS to UPS No time limit shift anytime but option is available for only once after 1.04.2025 for those who are already retired will get arrear with Interest.

key differences between the Unified Pension Scheme (UPS), National Pension System (NPS), and Old Pension Scheme (OPS)

Feature	Unified Pension Scheme (UPS)	National Pension System (NPS)	Old Pension Scheme (OPS)
Introduction	To be implemented from 1/4/2025	Introduced in 1/1/2004 (For All citizens including NRI aged between 18-70 years)	Existed before NPS (till 31/12/2003)
Pension Basis	50% of the average basic pay of the last 12 months	Market-linked, depends on the performance of selected funds	Fixed pension based on the last drawn salary
Employee Contribution	10% of salary	10% of salary	No employee contribution
Government Contribution	18.5% of salary	14% of salary	Fully funded by the government
Assured Pension	Yes, 50% of last 12 months’ average basic pay	No assured pension, dependent on market returns	Yes, fixed pension amount based on last drawn salary
Investment Options	Balanced approach with some assurance	Multiple investment options	No investment options, defined benefit scheme
Family Pension	Yes, 60% of the employee’s pension	No specific family pension component	Yes, family pension available
Tax Benefits	Yes, offers tax benefits	Substantial tax benefits under Sections 80C and 80CCD	Limited tax benefits, pension received is taxable
Risk Factor	Risk-free with guaranteed returns	Market risks based on fund performance	Risk-free, guaranteed returns
Lump Sum Benefit	1/10th of monthly emoluments for every six months of service	60% – Lump sum 40% Annuity	No lump sum, only defined pension
Inflation Indexation	Yes, inflation-linked increments post-retirement	No specific indexation, depends on fund returns	Yes, with inflation-linked increments

8. UPS vs. NPS So, which will be better for employees?

The decision to switch from NPS to UPS depends on individual circumstances. the younger employees should stay with NPS for potentially higher returns from equity market investments. For othes those closer to retirement UPS guaranteed pension benefits is the best option.

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CHETNAA GOYAL

Chetnaa Goyal one of the co-founder of TaxSmooth. An Qualified Chartered Accountant. More than 12 years of Experience in Direct Taxation. having own Taxation Practice in Delhi. Expertise in Income Tax Cases, Return filing, Tax Planning, Tax Advisory etc.