What makes Modi govt’s new Unified Pension Scheme different from NPS?

Amid the growing demand for the rollback of the Old Pension Scheme, the Union Cabinet, chaired by Prime Minister Narendra Modi, approved a new assured pension scheme providing 50% of salary for those who joined the service after January 1, 2004.

From the next financial year, National Pension Scheme subscribers who are government employees can opt for the Unified Pension Scheme (UPS) to avail themselves of the assured pension scheme. As the Centre has introduced the option to choose between UPS and NPS from the next financial year, here are the key differences between the two schemes.

Guaranteed fixed pension amount

The people who have opted for the National Pension Scheme would be eligible for the Unified Pension Scheme (UPS) from the next financial year. The UPS provides an assured pension, which is 50% of the salary for those who joined the service after January 1, 2004.

However, NPS is a market-linked defined contribution scheme. Since the money from NPS is invested in the market, the pension amount is not fixed and is subject to fluctuation based on market conditions.

Contribution from employee

The NPS requires a 10-per cent contribution from the employee's basic salary, matched by a 14 per cent contribution from the government. In the case of the new Unified Pension Scheme, the government's contribution to the UPS will increase to 18.5% against 14% currently. Whereas, the employees will continue to contribute 10% of their basic pay and DA.

NPS vs UPS eligibility

The UPS, announced by the Union Cabinet, will be available for all government employees, who joined the service after January 1, 2004.

“The Union Cabinet has approved Unified Pension Scheme (UPS) for government employees providing for the assured pension...50 per cent assured pension is the first pillar of the scheme,” ANI quoted Union Minister Ashwini Vaishnaw as saying on Saturday, August 24.

The National Pension Scheme is mandatory for government employees, but it is also available for the employees of Central Autonomous Bodies. It is also available to all State Government employees/employees of State Autonomous Bodies, if the respective State/UT opted for it.

Are private employees eligible for UPS or NPS?

The UPS has been launched for government employees who have opted for the NPS. Meanwhile, the old NPS is available for private employees if their employer has adopted the contribution. If not, any Indian citizen (between the ages of 18 and 70) can voluntarily opt for the NPS.

Tax benefit

Employees contributing to NPS are eligible for tax deductions up to 10% of salary (Basic + DA) under section 80 CCD(1) within the overall ceiling of Rs. 1.50 lakh under Sec 80 CCE. They can also avail deduction up to ₹50,000 under section 80 CCD(1B) over and above the overall ceiling of Rs. 1.50 lakh under Sec 80 CCE. However, tax benefits under the UPS are yet to be notified.