Unified Pension Scheme Vs Old Pension Scheme
The Indian government recently introduced the Unified Pension Scheme (UPS), intended to bridge the gap between the existing National Pension System (NPS) and the older Old Pension Scheme (OPS).
While it shares similarities with both, there are some key differences to be aware of.
Key Differences
| Feature | Unified Pension Scheme (UPS) | Old Pension Scheme (OPS) |
|---|---|---|
| Pension Calculation | 50% of the average basic pay drawn over the last 12 months of service | 50% of the last drawn basic pay + Dearness Allowance (DA) |
| Minimum Pension | ₹10,000 per month | No minimum pension guaranteed |
| Employee Contribution | 10% of basic pay + DA | No contribution required from the employee |
| Government Contribution | 18.5% of basic pay + DA | Entirely funded by the government |
| Lumpsum Withdrawal | Up to 33% of the accumulated corpus at retirement | No provision for lumpsum withdrawal |
| Tax Benefits | Tax benefits under Section 80C and Section 80CCD of the Income Tax Act | Pension amount is taxable |
Which is Better?
The UPS offers a guaranteed pension, unlike the market-linked NPS, and also includes a minimum pension amount, addressing some concerns with the previous systems.
However, the OPS still provides a higher pension amount due to the inclusion of DA and requires no contribution from the employee..
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The choice between UPS and OPS depends on individual preferences and financial goals.
- If you prioritize a guaranteed and stable pension with some flexibility for lumpsum withdrawal, the UPS might be a suitable choice.
- If you prefer a potentially higher pension amount and are comfortable with no employee contribution, the OPS might be more appealing.
Additional Points to Consider
- The UPS is currently only available for central government employees who joined after January 1, 2004, under the NPS.
- Several states have reverted to the OPS, so the availability of OPS might depend on your location and employer.
- It’s essential to carefully consider your financial situation, risk tolerance, and long-term goals before choosing a pension scheme. Consult a financial advisor if needed.
Remember, the pension landscape is constantly evolving, so stay updated on any changes or new options that may become available in the future.
