The
Unified Pension Scheme (UPS), launched by the central government to replace the
Old Pension Scheme (OPS) and NPS, has not received a warm response from employees. Out of
27 lakh central employees, only about
1% have joined so far. Here’s why UPS is facing resistance and what the government is doing about it.
1. What is the Unified Pension Scheme (UPS)?
UPS was announced in
April 2024 in response to demands to restore benefits similar to the
Old Pension Scheme (OPS). The key features include:
Employee Contribution: 10% of basic salary
Government Contribution: 18.5% of basic salary
Pension Guarantee: 50% of average basic salary of the last 12 months for employees with
25+ years of serviceMinimum Pension: Rs 10,000 per month for employees with
10+ years of serviceFamily Pension: 60% of last drawn pension after the death of the pensioner
Inflation-Linked: Pension increases with inflationDespite these benefits,
adoption remains low, with only a small fraction of employees enrolling.
2. Why Are Employees Avoiding UPS?
Several factors contribute to employee hesitation:
Long service Requirement: Full benefits require
25+ years of serviceHigh Contribution: Employees must contribute
10% of salary, which is considered steep by some
Limited Early Retirement Benefits: Those retiring early get fewer advantages
Family Pension Limits: Benefits to families are seen as
restricted compared to OPSUncertainty: Concerns about
death benefits during service, taxation, and cost vs benefit make employees cautious
No Exit Option: Once enrolled, employees cannot easily switch to another scheme—though a
one-time one-way switch has recently been introduced
3. government Measures to Promote UPS
The government has taken several steps to improve UPS attractiveness:
Tax Benefits: Income tax exemptions like those in NPS, including
tax-free withdrawal of 60% at retirementImproved Death & Disability Benefits: Enhancements similar to OPS for pensioners’ families
Gratuity Benefits: Retirement and death gratuity for UPS employees
Extended Deadlines: Switching from NPS to UPS extended from
June 30 to september 30One-Time Switch Facility: Employees can switch from UPS to NPS
one year before retirement or
three months before voluntary retirementThese measures aim to reduce hesitation and make UPS more employee-friendly.
4. Fiscal Implications of UPS
UPS is designed to
control government pension expenditure:
Estimated Extra Cost: Rs 8,500 crore in
FY26, gradually increasing as salaries rise
Controlled Employee Additions: Limiting new hires keeps expenses in check
Long-Term Savings: After 2036, retirees and family pensioners may pass away, and the pension capital
will not return to successors, reducing long-term fiscal burden
No Pension Reset: Unlike OPS,
basic pension won’t be revised after pay commission updates, saving resources for future generations
Conclusion
While UPS promises a
guaranteed pension and inflation protection, employees remain skeptical due to
high contributions, long service requirements, limited early retirement benefits, and family pension restrictions. The government’s recent measures, including tax benefits and flexible switching, aim to improve adoption. However, with
only 1% participation so far, it’s clear that employees are waiting for
clarity, flexibility, and tangible benefits before committing to the scheme.