The Unified Pension Scheme (UPS) is a newly launched initiative that guarantees retirees 50% of their last drawn salary as a pension. This pension is based on the average salary earned during the 12 months preceding retirement, provided the retiree has completed 25 years of qualifying service.
In response to the criticisms of the National Pension Scheme (NPS), the government approved the UPS on Saturday, August 24. This new scheme is set to be implemented in the upcoming financial year, beginning April 1, 2025.
Differences Between Unified Pension Scheme (UPS) and National Pension Scheme (NPS)
Guaranteed Pension with UPS: Unlike the NPS, which is market-linked, UPS offers a guaranteed pension. Employees currently enrolled in NPS will have the option to switch to UPS in the next year. The NPS, being a defined contribution scheme, invests funds in the market, leading to a pension amount that varies depending on market conditions.
Contribution Structure: Under National Pension Scheme (NSP), employees contribute 10% of their basic salary, while the government contributes 14%. UPS, however, increases the government’s contribution to 18.5%, while employees continue contributing 10% of their basic pay and Dearness Allowance (DA).
Tax Benefits and Eligibility
Tax Deductions for NPS: NPS contributors can claim tax deductions of up to 10% of their salary (Basic + DA) under Section 80 CCD(1), within the overall limit of ₹1.5 lakh under Section 80 CCE. Additionally, an extra deduction of up to ₹50,000 can be claimed under Section 80 CCD(1B), beyond the ₹1.5 lakh limit. The tax benefits for UPS are yet to be announced.
Eligibility: While UPS is designed specifically for government employees currently enrolled in NPS, private sector employees can also opt for NPS if their employers offer the scheme. Furthermore, any Indian citizen aged 18 to 70 is eligible to voluntarily enroll in NPS
