OPS, NPS, and now UPS... What is the difference between the three, why is UPS a loss-making deal compared to OPS?
During a Cabinet meeting chaired by Prime Minister Narendra Modi on August 24, 2024, the government announced the launch of the Unified Pension Scheme (UPS) for central government employees, a significant change from the existing New Pension Scheme (NPS). Based on the recommendations of a committee headed by the current Cabinet Secretary and former Finance Secretary, T.V. Somanathan, the new scheme is expected to benefit 2.3 million government employees by providing them with an assured pension, which was not there in NPS.
Is UPS a better deal than OPS?
The announcement of UPS has evoked mixed reactions among labor unions. RSS-affiliated labor union Bharatiya Mazdoor Sangh has welcomed the scheme, while several central trade unions, including CITU and AITUC, have rejected it and demanded the restoration of the Old Pension Scheme (OPS), which they have been advocating for a long time. This raises the question: Is UPS less beneficial than OPS? What are the key differences between the two?
Different methods of calculating pension in UPS and OPS
Both UPS and OPS offer assured pensions to government employees, but the methods of calculation are quite different. Under OPS, pension is calculated as 50% of the basic pay and dearness allowance (DA) last drawn by the employee just before retirement. In contrast, UPS calculates pension based on the average of the basic pay and DA of the last 12 months before retirement, which forms the basis of an assured pension.
Mandatory contribution in UPS, not in OPS
One major difference between the two schemes is the employee contribution requirement. In UPS, employees must contribute 10% of their basic pay and DA to the pension fund, just like in NPS. However, the government will contribute 18.5% to the fund, which is higher than the 14% contribution under NPS. In contrast, OPS did not require any contribution from employees to the pension fund, which is one of the main reasons why labor unions have consistently supported OPS over NPS and are now opposing UPS as well.
Service Requirements: 20 years for OPS, 25 years for UPS
Under UPS, government employees will have to complete at least 25 years of service to be eligible for an assured pension, while under OPS they will have to complete only 20 years of service. This means employees will need to serve five additional years under UPS to be eligible for the same benefits, making it less favorable in terms of service period requirements.