New Delhi: The central government is bringing a new pension scheme for employees. Its name is Unified Pension Scheme (UPS). It will be an alternative to the National Pension System (NPS). The draft of UPS is being prepared.
The guidelines will be made by December. Employees will have to choose either NPS or UPS by March 31. UPS will be implemented from April 1, 2025. Employees will be able to invest in the entire pension fund in UPS. A lump sum amount will not be received on retirement. The government will increase its contribution. Compared to NPS, UPS will provide more pension, but not as much as the Old Pension Scheme (OPS).
The central government has introduced a new pension option for employees – Unified Pension Scheme (UPS). It will work as an alternative to the existing National Pension System (NPS). The aim of this new scheme is to provide better financial security to employees after retirement.
Till when will we have the option to choose?
The draft of UPS is being prepared, on the basis of which the final guideline will be made. This guideline is expected to be ready by December. After this, employees will have to choose either NPS or UPS by March 31. The new scheme UPS will come into effect from April 1, 2025.
What makes the new scheme special?
A special feature of UPS is that employees will get the option to invest 100% of the amount deposited in their fund. In NPS, employees can invest up to 50% of the amount through 12 service providers suggested by the government.
Central employees in UPS will not have the option of withdrawing a lump sum amount at the time of retirement. That is, the entire amount deposited in their fund will be used to make pension. In NPS, the employee gets 60% of the amount at the time of retirement. The remaining 40% amount is used to make pension.
The government will also increase its contribution in UPS. The government contributes 14% in NPS. Whereas in UPS it will increase to 18.50%. The employee’s contribution will remain 10% only. In this way, a total of 24% amount is deposited in NPS. Whereas in UPS it will increase to 28.50%.
Who do experts say is better?
However, only 20% of the amount will go to the pension fund. The remaining 8.50% will be deposited in a separate pool. This amount will be used if there is a 50% reduction in the employee’s pension at the time of his retirement. This will ensure that the employee gets at least 50% of his last salary as pension.
Experts believe that UPS is better than NPS as a pension option. In UPS the pension amount can increase. Whereas in NPS it is uncertain. However, it is not as good as the Old Pension Scheme (OPS).
When to use 8.50% pool amount in UPS?
If the pension generated from the amount deposited in the annuity is less than 50% of the employee’s last salary, then this pool amount will be used. For example, if the last salary of an employee is Rs 1 lakh and the pension generated from the annuity is Rs 46,000, then the remaining Rs 4,000 will be given from the pool fund.
After the death of the employee, his wife is given pension. If the wife wants to take a lump sum amount, she will get the amount from the pool fund. If she wants to take pension, she will not get this amount. After the death of the wife, the entire amount deposited in the pool fund will be given to the dependent, but she will not get pension. This arrangement is also there in NPS.
Overall, UPS is a better option than NPS, which provides more pension and investment flexibility to the employees. However, it is not as good as OPS. Employees should choose either of the NPS and UPS options according to their needs and financial situation.
