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The recent announcement of India's Unified Pension Scheme (UPS) has generated significant interest among central government employees. The scheme, introduced as an alternative to the National Pension System (NPS), aims to address long-standing demands for a system resembling the old pension scheme (OPS), which guaranteed a 50% pension of the last drawn salary. However, the reality is more nuanced than a simple restoration of the OPS. While the UPS offers the potential for a 50% pension, achieving this requires fulfilling specific conditions outlined in the January 24, 2025 notification.
The crux of the matter lies in a complex formula used to calculate the assured payout. The formula, Assured payout = (P/2) x (Q/300) x (IC/BC), where P represents the average of the past 12-month basic pay, Q signifies the number of months in service (capped at 300), IC stands for the individual corpus accumulated, and BC denotes the benchmark corpus set by the government, highlights the multifaceted nature of this benefit. This formula significantly deviates from the straightforward 50% of last-drawn salary offered under the OPS. Experts explain that only employees who receive salary increments on specific dates (January 1st or July 1st) and retire on corresponding dates (December 31st or June 30th) will see their assured payout closely mirroring 50% of their final salary.
Furthermore, the achievement of this 50% payout is contingent upon two additional critical factors: a minimum of 300 months of service and an individual retirement corpus (IC) that equals or exceeds the government-defined benchmark corpus (BC). These conditions underscore the fact that the UPS is not a guaranteed 50% pension for all central government employees. Many employees, especially those who do not meet these precise conditions, will receive a significantly lower pension. The disparity between the advertised 50% and the actual payout received by many government employees will likely lead to further discussions and perhaps adjustments to the scheme in the future.
The notification also addresses the issue of voluntary retirement after at least 25 years of qualified service. In such cases, the assured payout does not commence immediately but is deferred until the employee would have reached the standard superannuation age (generally 60). For example, an employee who joins at 21 and retires voluntarily at 46 would only begin receiving the assured payout at age 60. This provision highlights a potential drawback of the UPS compared to immediate payout options. While this aspect offers certainty in terms of pension commencement, it impacts the time value of money and financial planning considerations for employees.
Finally, the scheme does provide some relief. Dearness relief, a crucial cost-of-living adjustment, will be applied to both the assured payout and any family payout provisions. This means that the pension amount is not fixed but will be adjusted periodically to account for inflation. This feature partially mitigates the potential negative impacts of the complex payout calculation and delayed payment in cases of early retirement. However, it does not address the core issue of the formulaic conditions limiting the accessibility of the much-discussed 50% pension benefit.
In conclusion, the Unified Pension Scheme presents a complex reality compared to its initial portrayal. While it offers the potential for a 50% pension, the conditions attached to achieving this target are stringent and limit the number of employees who will actually receive this amount. The emphasis on specific salary increment dates, the mandatory 300-month service requirement, and the necessity of matching the benchmark corpus significantly restrict accessibility to the promised 50% pension. The scheme's intricacies warrant careful consideration from central government employees before making their choice between the UPS and the NPS.
Source: Unified Pension Scheme: Will All Central Govt Employees Receive 50% Salary As Pension?