Budget 2025: Last year, the Centre announced the Unified Pension Scheme for central government employees, blending key features of the Old Pension Scheme (OPS) and the National Pension System (NPS). However, the move failed to deter employee unions from continuing their demand for a full restoration of the OPS.
The Unified Pension Scheme (UPS) is set to be implemented from April 1, 2025. Experts believe that despite the ongoing agitation by employee unions, the government may not revamp the features of UPS to address the concerns of employees and pacify their unions.
Unions adamant about demand for OPS restoration
Despite the UPS announcement, some employee unions are adamant about their demand for the restoration of the OPS, which guarantees a pension equivalent to 50% of the last drawn salary after retirement. Under the OPS, there was no provision for any monthly contribution from employees. On the other hand, UPS will make employees contribute 10% of their basic salary monthly towards the scheme, while the government will contribute 18.5%.
A section of employees remains dissatisfied with UPS due to its self-contribution feature. These employees are demanding the restoration of the OPS, which did not require any monthly salary contribution.
UPS has not resolved the ongoing dissatisfaction among some employee groups, say experts, adding that many unions continue to demand the restoration of the OPS, which did not require self-contribution.
Rajeev Gupta, Executive Vice President & Business Head – E-Governance, Religare Broking Limited, noted that the UPS is “not only attractive but also adds a fiscal outlay of Rs 6,250 crore.” The new scheme allows all government employees to shift to UPS in the upcoming financial year, promising guaranteed pensions, inflation adjustments, and robust family benefits.
By addressing key employee concerns while balancing fiscal prudence, the UPS stands out as a significant innovation in government pension policy.
Gupta further said, “The purpose of any government-aided pension scheme is to strike a balance between retirement planning and fiscal prudence. With the introduction of UPS, the government has conducted a balancing act towards both goals.”
Difference between UPS, NPS, OPS
Here’s a simple breakdown to help you understand the key differences:
- Pension Amount
UPS: 50% of the average basic pay from the last 12 months.
NPS: Based on market-linked returns and accumulated corpus.
OPS: 50% of the last drawn salary, with DA (Dearness Allowance) hikes.
- Employee Contribution
UPS: 10% of basic salary.
NPS: 10% of basic salary.
OPS: No contribution required from employees.
- Government Contribution
UPS: 18.5% of basic salary.
NPS: 14% of basic salary.
OPS: Fully funded by the government.
- Inflation Protection
UPS: Yes, linked to the All India Consumer Price Index (AICPI-IW).
NPS: No automatic inflation adjustment.
OPS: Yes, through DA hikes.
- Family Pension
UPS: 60% of the employee’s pension continues to the family.
NPS: Based on the accumulated corpus and annuity plan.
OPS: Full pension continues to the family after the retiree’s death.
- Minimum Pension
UPS: Rs 10,000/month for employees with 10+ years of service.
NPS: No fixed minimum; depends on investments.
OPS: No specific minimum pension amount.
- Lump Sum Amount
UPS: 1/10th of the last drawn pay every 6 months.
NPS: Up to 60% of the corpus can be withdrawn as a lump sum.
OPS: Typically none, as it’s a defined benefit plan.
- Risk Factor
UPS: No market risk, assured returns.
NPS: Subject to market risks; returns vary.
OPS: Low risk, fully government-backed.
- Flexibility
UPS: Limited flexibility, but assured pension.
NPS: High flexibility, with investment choices.
OPS: Low flexibility, with fixed benefits.
- Portability
UPS: Non-portable, tied to government service.
NPS: Fully portable across sectors and jobs.
OPS: Universal but restricted to government employees.
- Tax Benefits
UPS: Limited benefits (specific details yet to be clarified).
NPS: Eligible for deductions under Section 80C and 80CCD.
OPS: Likely tax benefits, but not yet explicitly defined.
This comparison highlights how each scheme caters to different needs, with UPS offering a middle ground between the market-linked NPS and the fully government-funded OPS.