Unified Pension Scheme vs. Old Pension Scheme: Key Differences Explained

Unified Pension Scheme vs. Old Pension Scheme: The Modi government has recently introduced the Unified Pension Scheme (UPS), which is being seen as an upgrade from the National Pension Scheme (NPS) and is often compared to the Old Pension Scheme (OPS). Despite explanations from officials like Ashwini Vaishnaw, many people are still unclear about the differences between the OPS and the new UPS. Here are four key differences every employee should know:

Pension Calculation Method

• UPS: Under the Unified Pension Scheme, your pension is calculated as 50% of the average basic salary over the last 12 months before retirement.
• OPS: In the Old Pension Scheme, the pension was calculated as 50% of the basic salary for the last month of service.

This means if you receive a promotion and your salary increases just before retirement, the UPS could result in a lower pension compared to OPS, as it uses a 12-month average rather than the final month's salary.

Employee Contribution

• UPS: Employees under the UPS must contribute 10% of their salary (basic dearness allowance). The government’s contribution has increased to 18.5%, up from the previous 14%.
• OPS: There were no mandatory contributions from employees under the OPS. Employees received their pensions without any salary deductions.

Lump Sum Amount and Its Impact

UPS: The UPS provides a lump sum payment at retirement, calculated as one-tenth of the basic salary and dearness allowance for every six months of service. This lump sum does not impact the monthly pension payment

OPS: Under the Old Pension Scheme, the lump sum amount received at retirement would reduce the monthly pension amount.

Minimum Pension Guarantee

• UPS: The UPS guarantees a minimum pension of Rs 10,000 per month for those who have worked at least 10 years in a government job.
• OPS: The current minimum pension after 10 years of service, according to the government’s pensioners' portal, is Rs 9,000 per month.

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While the UPS introduces several changes, including higher employee contributions and a minimum pension guarantee, it also brings differences in pension calculation and lump sum payments compared to the OPS. Understanding these differences can help employees better plan for their retirement.