Unified Pension Scheme (UPS) — Guaranteed Pension

New Unified Pension Scheme for central government employees approved by the Union Cabinet to provide a guaranteed pension for the pension holder and the family, backed by inflation adjustment.

Unified Pension Scheme (UPS) — Explained

This document covers

Background
What is New Unified Pension Scheme?
Why UPS when NPS?
Eligibility & Applicability
NPS vs UPS
UPS and Income Tax

1. Background

The National Pension System (NPS) is a social security benefit that is available to individuals in India. NPS was initially offered to government employees. Subsequently, NPS was extended to all Indian citizens, including non-resident Indians, effective May 1, 2009.

There is no guarantee of a minimum pension in a market-linked long-term investment, which is the primary characteristic of NPS. Essentially, the market performance is the sole determinant of the pension returns from the NPS scheme.

The government of India established a committee to enhance the National Pension System (NPS) in order to provide pension assurance regardless of market conditions. The cabinet of ministers approved the "Unified Pension Scheme" (UPS) bill on August 24, 2024.

2. What is New Unified Pension Scheme (UPS)?

Unified Pension Scheme (UPS), built on two (2) core principles,

To guarantee a pension amount, and
To enhance purchasing power, thereby ensuring financial security.

Unified Pension Scheme (UPS), built on five (5) core pillars,

Assured Pension:
- 50% of the average basic pay for the previous 12 months, provided that the individual has a minimum of 25 years of service.
- Proportionate basis in the event of a shorter service period when a minimum of 10 years of service is maintained.
Assured Family Pension:
- A family pension that is guaranteed to be 60% of the employee's authorized pension.
- Paid to the family following the employee's demise.
- Additionally, it guarantees financial stability for dependents in the event that the employee's spouse is unavailable or deceased.
Assured Minimum Pension:
- A minimum pension of Rs. 10,000 per month is applicable to employees who have served for a minimum of 10 years.
Inflation Protection:
- The UPS pension is administered with indexation using the "All India Consumer Price Index for Industrial Workers" (AICPI-IW) to preserve the pension recipient's purchasing power.
Lump Sum Benefit:
- UPS offers an additional gratuity to employees who enter the superannuation period.
- For each six months of service fulfilled, it is equivalent to one-tenth (1/10^th) of the monthly emolument (Basic + DA).
- This doesn't reduce the guaranteed pension under this program.

3. Why UPS when NPS?

On August 24, 2024, the Government of India authorized the creation of a new Unified Pension Scheme (UPS) to address the demands of central government employees, eliminate the shortcomings of the National Pension System (NPS), and redefine the Indian Social Security architecture.

The primary advantage of UPS over NPS is the "assurance" of a minimum pension, as well as the distribution of the pension and the indexation benefit.

4. Eligibility & Applicability

Starting April 1, 2025, UPS will exclusively be available to government employees. Conversely, the NPS has been accessible to all Indian citizens, including NRIs, since 2004 and will continue to exist alongside with UPS.

Currently, the Unified Pension Scheme (UPS) is exclusively applicable to Central Government Employees. The central government is advising all states to adopt this policy for the benefit of state employees, as it is both futuristic and unified.

5. NPS vs UPS

Feature	NPS (National Pension System)	UPS (Unified Pension Scheme)
Applicability	Post 2004	From April 1st 2025
Eligibility	All Citizens, including NRIs	Central employees, and potentially state employees in future * Employees eligible for 1 time switch from NPS to UPS.
Pension Amount	Depends on the market performance and the contribution amount	50% of the average basic pay of the previous 12 months after 25 years of service.
Employee Contribution	10% of the Salary (Basic + DA)	10% of the Salary (Basic + DA)^{^}
Government Contribution	14% of the employees Salary (Basic + DA)	18.5%; Fully funded by the Government
Guaranteed Pension	None	Yes, minimum pension
Minimum Pension	No minimum	Rs. 10,000 per month after 10 years of service
Family Pension	None	60% of the employees pension after demise
Investment Risk	Owned by the pensioner, depends on the investments	No risk to the pensioner, funded by the Government.
Indexation Benefit	None	Dearness Relief, Indexation benefit based on AICPI-IW
Lifetime Security	Yes, but depends on market conditions.	Yes with minimum guaranteed pension, rest depends on market conditions.
Lumpsum Payment	Possible, up to 60% *	1/10^th of the monthly emolument (Basic + DA) for every 6 months of completed service.
No. of Beneficiaries	3 Crore +	23 Lakhs * (99 Lakhs if states accepted this scheme)

^ further clarification needed from Govt. of India.

6. UPS and Income Tax

6.1. At Investment Time

Although the new UPS does not require an investment, investments made into the NPS provide tax benefits under 80CCD (1), 80CCD (2), and 80CCD (1B).

Refer Best Income Tax Saving Investment Options in India for more information

6.2. At withdrawals time

You are exempt from taxes on up to 60% of your NPS withdrawals. The remaining 40% should be allocated to the purchase of annuities. Conversely, UPS does not seem to indicate any possibility for a lump sum withdrawal.