Answer:

The Unified Pension Scheme (UPS) is a newly proposed pension framework by the Indian government designed to address the challenges posed by the existing National Pension Scheme (NPS) and Old Pension Scheme (OPS). Effective from April 2025, UPS offers government employees assured pensions along with contributory features similar to NPS, aiming to balance fiscal sustainability and employee security. It is seen as a progressive move to reform India’s pension system while ensuring inclusivity and financial stability.

Unified Pension Scheme (UPS):

• Assured Pension Benefits: UPS guarantees an assured pension amounting to 50% of an employee’s last drawn salary, calculated over the last 12 months.
  For example: A government employee with 25 years will receive 50% of their average basic pay plus dearness allowance (DA) as their pension.
• Minimum Pension Guarantee: The scheme ensures a minimum pension of ₹10,000 per month for those who retire after at least 10 years of service, thus improving post-retirement security.
  For instance: Compared to the NPS, this minimum pension threshold offers more financial certainty to retirees.
• Inflation Indexation: Pension amounts will be indexed to inflation rates, ensuring that retirees maintain their purchasing power despite rising living costs.
  For example: The pension will be adjusted based on the All India Consumer Price Index for Industrial Workers, helping retirees cope with inflation.
• Family Pension: UPS includes a family pension benefit ensuring continued financial support for dependents.
  For example: The retiree’s family will receive 60% of the last drawn pension in case of the retiree’s death, 
• Employee Contribution: The UPS mandates a 10% contribution from employees, while the government contributes 18.5%, offering a balanced mix of employee savings and government support.
• Lump Sum Payment: UPS allows a lump sum payout at retirement, calculated as 1/10th of the employee’s salary and DA for every six months of service, without reducing the pension amount.
  For instnace: This payout offers employees additional liquidity upon retirement, addressing immediate financial needs.
• Voluntary Participation: Government employees can choose between NPS and UPS but must stick to their selection throughout their career, ensuring flexibility while providing clear retirement planning paths.
  For instance: Once opted, an employee cannot switch between NPS and UPS, ensuring long-term planning.

How UPS Addresses the Shortcomings of NPS While Ensuring Inclusivity:

• Guaranteed Returns over Market Risk: Unlike NPS, UPS provides assured pension returns, eliminating the uncertainty of market-linked investments.
  For instance: NPS funds depend on market performance, which may not guarantee stable post-retirement income, a gap addressed by UPS.
• Enhanced Security for Retirees: By guaranteeing minimum pension amounts and indexing to inflation, UPS offers more financial security compared to NPS, which doesn’t assure a specific return.
  For instance: NPS offers no minimum pension guarantee, leaving retirees vulnerable to market fluctuations, while UPS ensures fixed benefits.
• Inclusion of Low-Income Workers: UPS aims to be more inclusive by providing assured pension benefits to even those with shorter service periods, unlike NPS which largely depends on accumulated contributions.
  For instance: Employees with as little as 10 years of service are entitled to receive ₹10,000 per month under UPS.
• Reduced Dependency on Market Performance: By incorporating a defined benefit system, UPS reduces the market risk associated with NPS, making it more stable for employees nearing retirement.
  For instance: NPS retirees may face reduced pension income during market downturns, but UPS shields them from such risks.
• Simplified Pension Calculation: UPS simplifies pension calculations by using the last 12 months’ average salary, compared to NPS which depends on the total corpus accumulated and annuity rates.
  For instance: Employees can better predict their retirement income under UPS, aiding long-term financial planning.
• Improved Financial Protection for Families: The family pension provisions in UPS ensure that dependents are financially supported after the retiree’s death, a feature lacking in NPS.
  For instance: NPS offers no direct family pension benefits.
• Addressing Retirement Inequality: The UPS tackles the inequality in retirement benefits caused by market-linked schemes like NPS, offering uniformity across all government employees, fostering inclusivity.
  For instance: Employees retiring under NPS may have vastly different pension amounts based on their investment choices, but UPS offers a more equitable solution.

The Unified Pension Scheme (UPS) presents a balanced approach, addressing the uncertainty associated with the National Pension System (NPS) and the fiscal unsustainability of the Old Pension Scheme (OPS). With features like guaranteed returns, minimum pension thresholds, and inflation protection, it ensures financial stability for government employees. By blending the strengths of both OPS and NPS, the UPS lays a solid foundation for more inclusive and secure retirement planning.

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