UPS Launching from April 1: How It Differs from NPS?; Here is What Employees Should Know
The Unified Pension Scheme (UPS) under the National Pension System (NPS) will be implemented from April 1, 2025. It aims to provide financial security for central government employees after their retirement. UPS offers guaranteed pension benefits, contributions made by the government, and Investment flexibility.
Guaranteed Pension based on Service Period
UPS offers a fixed pension amount depending on how long an employee has worked. If someone has completed 25 years or more in service, they will get 50% of their average basic salary from the last 12 months as their monthly pension.
Those employees who have served for 10-15 years will receive a pension based on the length of their service. This ensures that the longer service will offer higher pensions to the employees.
Employees who have completed 10 years of their service will receive a minimum guaranteed pension of Rs. 10,000 per month.
The scheme is introduced to offer a reliable source of income to secure the future of employees in their retirement days. As per an expert, it offers retirees a predictable monthly pension and financial stability as compared to NPS.
Contributions made by the Government and Investment Choices in UPS
Employees are required to contribute 10% of their basic salary plus Dearness Allowance (DA) Under UPS. The government will match this amount, resulting in a total investment of 20%.
These contributions will be automatically invested in schemes prescribed by approved pension schemes. However, employees also have the option to choose private pension fund managers (PFMs) to manage their investments.
In addition to this, an extra 8.5% of the salary will be invested in a common fund. This fund will be managed by top-performing investment managers chosen by the government.
An expert has highlighted the importance of private PFMs in the scheme. He stated that since private pension fund managers (PFMs) are included in the scheme, employees will have more options to decide where their money is invested. This gives them the flexibility to choose investment plans that match their financial goals.
Protection against Inflation with DA Adjustments
One of the biggest benefits of UPS is that it is linked to Dearness Allowance (DA). This will increase over time to protect against inflation.
UPS ensures that retirees can maintain their standard of living unlike traditional pension plans, which offer fixed payouts, which may lose value as prices rise.
Ensures Financial Security for Spouses and Survivors
If the retiree passes away, their spouse will continue to receive 60% of the pension amount. By doing this, UPS focuses on offering continued financial security for the spouse of the pensioner. It will financially support the pensioner’s spouse after the pensioner passes away.
How will Retirees receive Payments under UPS?
After the retirement of an employee, the pension amount will be paid out from their accumulated corpus like a systematic withdrawal plan (SWP) in the mutual fund. Pensioners will get regular pension amounts while the remaining amount stays invested.
If the corpus runs out before the retiree or their spouse passes away, the payments will continue from a government-managed common pool ensuring that they always have financial support. This guarantees that retirees will receive a pension for a lifetime, even if their corpus depletes. This ensures that they continue to get payments, without the fear of running out of money in old age.
State Government Employees and UPS Adoption
UPS is only available to the central government as of now. State governments must decide independently whether they want to implement the scheme for their employees. Many states are likely to determine its benefits before making a final decision.
An expert states that clarity is still needed on how UPS will be adopted by state governments. While the structure is seen as promising, the financial implications will need to be weighed by states before its implementation.
How can Employees enrol?
Employees who qualify for UPS can start enroling from April 1, 2025, through the Protean CRA portal (npscra.nsdl.co.in) or opt to submit physical forms.
Challenges and Limitations of UPS
Although UPS has many benefits, it also comes with certain drawbacks. One of the limitations is that annuity service providers (ASPs) are not included in the new system which will affect their role in pension fund management.
Additionally, there is still uncertainty about how the extra 8.5% contribution to the common pool fund will be invested. The government is yet to finalize this decision and more details are expected to be announced in the coming months.
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