UPS vs NPS vs OPS: Know the Key Differences, Contributions, and Important Insights

The Union Cabinet, headed by Prime Minister Narendra Modi, made a significant decision on Saturday by approving the Unified Pension Scheme (UPS) for government employees. This new scheme, introduced by the NDA government, will run alongside the National Pension Scheme (NPS), allowing government employees the option to choose between NPS and UPS. Meanwhile, many states continue to operate the Old Pension Scheme (OPS). With three pension schemes in place, many people are unaware of their differences and benefits. If you’re confused about OPS, NPS, and UPS, or wondering which pension scheme is best for you, read on for a detailed explanation.

What is the Unified Pension Scheme (UPS)?

The Unified Pension Scheme (UPS), which will be implemented from April 1, 2025, is designed for central government employees. Under this scheme, employees will be given a fixed pension equal to 50% of their average basic salary over the last 12 months of service. To qualify for this pension, employees must serve for at least 25 years.

Pension Benefits for Employees and Families

Employee Pension: A fixed pension will be provided, based on 50% of the average basic salary of the last 12 months.
Family Pension: In the event of the employee’s death, the family will receive 60% of the pension amount.
Minimum Assured Pension: Employees with at least 10 years of service will be entitled to a minimum pension of ₹10,000.

Pension to Increase Based on Inflation

Under the Unified Pension Scheme (UPS), indexation has been included to ensure that the pension of retired employees increases with inflation. This adjustment will be added to the pension as Dearness Allowance (DA) and calculated based on the All India Consumer Price Index for Industrial Workers (AICPI-W).

Additionally, a lump sum amount will be provided at the time of retirement. This amount will be calculated as one-tenth of the basic salary and Dearness Allowance for every six months of service completed by the employee. This lump sum is separate from the gratuity benefit.

Difference Between UPS, NPS, and OPS

1. Eligibility:
   • UPS: Only central government employees can avail of benefits.
   • NPS: Both private and government employees can open accounts.
   • OPS: Only government employees are eligible.
2. Salary Deduction:
   • UPS: A fixed amount will be deducted from the salary, with an additional 18.5% contribution by the government.
   • NPS: 10% (Basic + DA) is deducted from the salary.
   • OPS: No deduction from salary for pension.
3. Provident Fund (PF):
   • UPS: Provides a lump sum amount at retirement, calculated as one-tenth of the basic salary and Dearness Allowance for every six months of service.
   • NPS: No PF facility. It’s linked to the stock market, with up to 60% of the contribution given as a lump sum at retirement, and the remaining 40% as an annuity.
   • OPS: Includes Government Provident Fund (GPF).
4. Pension:
   • UPS: Provides a fixed pension of 50% of the average basic salary over the last 12 months of service.
   • NPS: No guaranteed fixed pension at retirement.
   • OPS: Provides a fixed pension of 50% of the last basic salary.
5. Dearness Allowance (DA):
   • UPS: Provides Dearness Relief (DR) adjusted according to inflation.
   • NPS: No Dearness Allowance after six months.
   • OPS: Provides DA after every six months.
6. Gratuity:
   • UPS: Provides a lump sum amount, separate from gratuity.
   • NPS: Temporary provision for gratuity.
   • OPS: Provides gratuity up to ₹20 lakh after retirement.
7. Family Pension:
   • UPS: Provides family pension in case of the employee’s death.
   • NPS: Provides family pension in case of death during service, but the government seizes the money deposited under NPS.
   • OPS: Family pension is available if the employee dies during service.
8. Taxation:
   • UPS: It is unclear whether interest in UPS will be taxed.
   • NPS: Tax is applicable on the amount received at retirement, based on stock market performance.
   • OPS: No income tax on GPF interest upon retirement.
9. Investment Requirement:
   • UPS: No investment is required from the employee.
   • NPS: 40% of the money from the NPS fund must be invested to receive a pension.
   • OPS: No investment requirement for pension.
10. Minimum Pension:
    • UPS: Provides a minimum pension of ₹10,000 after 10 years of service.
    • NPS: Does not have a provision for minimum pension.
    • OPS: No minimum pension guarantee.
11. Medical Facilities:
    • UPS: Provides medical facilities to employees.
    • NPS: No clear provision for medical facilities.
    • OPS: Provides medical facilities (FMA) after retirement.
12. Eligibility for Benefits:
    • UPS: Only available to government employees.
    • NPS: Available to both private and government employees.
    • OPS: Only available to government employees.

Key Differences Between UPS and NPS

• Choice of Scheme:
  • The government has allowed employees to choose between UPS and NPS.
  • Once NPS is selected, switching to UPS is not allowed.
• Eligibility:
  • UPS: Exclusively for government employees, benefitting around 23 lakh employees.
  • NPS: Open to everyone, including private sector employees, with two account options – Tier 1 and Tier 2.
• Pension Features:
  • UPS: Offers a fixed pension along with a family pension. A minimum fixed pension is guaranteed.
  • NPS: Does not provide fixed pension benefits or family pension guarantees.
• Nature of Scheme:
  • UPS: A secure pension scheme, not linked to market risks.
  • NPS: A market-linked scheme, influenced by market fluctuations.