Difference between UPS vs NPS vs OPS

Unified Pension System

The Narendra Modi-led government has approved a new pension scheme, the Unified Pension Scheme, which will come into effect in the next fiscal year, i.e. FY2025-26. After facing much criticism for removing the Old Pension Scheme, the NDA government has introduced the Unified Pension Scheme, which amalgamates the advantages of the previous Old Pension Scheme and the features of the New Pension Scheme.

The defined assured pension, also known as a fixed pension amount, guarantees a specific and predetermined sum of money that a retiree will receive regularly after retirement. This pension provides financial stability and security for individuals post-retirement. 

The newly approved scheme ensures that Central government employees will receive 50% of their last drawn salary from the past 12 months as their pension. Additionally, those employees who serve a tenure exceeding 25 years will be eligible for post-retirement inflation-linked increments.

Related Post - Why OPS is better than UPS? Please check

Information & Broadcasting Minister Ashwini Vaishnaw on Saturday said: “There have been demands from government employees to reform NPS (New Pension Scheme)… PM Narendra Modi formed a committee in April 2023 on this under T V Somanathan (who was then finance secretary)… After extensive consultations and discussions, including with the JCM (Joint Consultative Mechanism), the committee has recommended the Unified Pension Scheme. Today, the Union Cabinet has approved the scheme.”

Here are the key features of the Unified Pension Scheme:

1. Under the Unified Pension Scheme, there will be a provision of a fixed assured pension, unlike the New Pension Scheme (NPS) which does not promise a fixed pension amount.

2.   Under this scheme, individuals will be eligible to draw 50% of their average basic pay earned during the last 12 months preceding retirement. To qualify for this benefit, individuals must have completed a minimum of 25 years of service.

3. The Unified Pension Scheme has five pillars: Assured Pension, Assured Family Pension, Assured Minimum Pension, Inflation Indexation, and Gratuity

4. Assured Pension: Under the Unified Pension Scheme (UPS), the fixed pension amount awarded will be 50% of the average basic pay received during the last 12 months before retirement for individuals with a minimum qualifying service of 25 years. This pension amount will be adjusted proportionately for individuals with lesser years of service, with a minimum of 10 years of service being required to qualify for the pension.

5. Assured Family Pension: The retirement benefits package includes an assured family pension, amounting to 60% of the employee's basic pay. This pension will be disbursed promptly in the event of the employee's passing.

6. Assured Minimum Pension: In the situation of superannuation following at least 10 years of service, the Uniform Pension System (UPS) includes a guarantee of a minimum pension amounting to Rs 10,000 per month.

7. Inflation Indexation: The indexation benefit is a provision that applies to assured pension, assured family pension, and assured minimum pension. This benefit ensures that these pensions are adjusted to keep up with inflation and changes in the cost of living over time. When indexed, these pensions are periodically reviewed and adjusted to maintain their real value and purchasing power for the beneficiaries.

8. Gratuity: Upon superannuation, an employee is entitled to receive a lump-sum payment along with gratuity. This lump-sum payment is calculated as 1/10th of the monthly emolument (pay + dearness allowance), which includes both pay and dearness allowance, as of the superannuation date for every six months of completed service. Importantly, this payment does not diminish the amount of assured pension the employee will receive.

9. The UPS is designed to provide financial security and support to employees even after their demise. It guarantees 60% of the pension to be immediately transferred to the employee's family as a family pension, similar to the benefits offered by OPS. Additionally, after completing 10 years of service, employees under the UPS are assured a minimum pension of Rs 10,000 per month.

10. It's important to note that the UPS differs from the Guaranteed Pension Scheme proposal that was under consideration by the Andhra Pradesh government. The proposed Guaranteed Pension Scheme aimed to provide a pension amounting to 33% of the last drawn salary to employees.

National Pension System (NPS)

First floated in January 2004, the National Pension Scheme (NPS) was initially established as a retirement plan exclusively for government employees, but in 2009, it was expanded to cover all sectors. Governed jointly by the government and the Pension Fund Regulatory and Development Authority (PFRDA), the NPS is a long-term, voluntary investment program designed for retirement purposes.

> The NPS offers a pension alongside the potential for considerable investment growth. Upon reaching retirement age, subscribers have the choice to withdraw a portion of their accumulated savings, while the remaining sum is distributed as a monthly income, ensuring a regular income stream post-retirement.

> The National Pension Scheme comprises two tiers: Tier 1 accounts and Tier 2 accounts. Tier 1 account holders can only withdraw funds after retirement, whereas Tier 2 accounts allow for early withdrawals, providing more flexibility for investors.

> Under NPS, individuals are eligible to withdraw 60% of the total corpus accumulated during their active employment years upon reaching retirement age, and this withdrawal is exempt from taxation. The remaining 40% is typically utilised to purchase an annuity product, which presently offers a pension amounting to around 35% of the individual's final salary before retirement.

> Under Section 80 CCD of the Income Tax Act, individuals can avail tax benefits by investing in the National Pension System (NPS) up to a maximum limit of Rs 1.5 lakh. 

> Furthermore, withdrawing 60 percent of the NPS corpus upon retirement can be done tax-free, making it an attractive option for retirement planning. This feature offers the potential for a lump sum payout, adding to its appeal as a retirement savings vehicle.

Old Pension System(OPS)

So, every time the government increases your Dearness Allowance, the government also hikes the Dearness Relief for retirees. 

Under the regulations, OPS guarantees that upon retirement, an employee will receive 50% of their salary as a pension. Within OPS, there is a mechanism in place known as the General Provident Fund (GPF), which enables employees to set aside a portion of their income. This amount is later repaid with accumulated interest upon their retirement. 

Moreover, within OPS, employees are entitled to a gratuity payment of a maximum of Rs 20 lakh. 

Payments facilitated by OPS are executed through the government treasury, ensuring that pensions are directly financed by the government. Should a retired employee pass away, their family receives continued pension benefits. Noteworthy is the fact that no deductions are made from an employee's salary for the purpose of pension contributions under OPS.

A mix of features

The new Unified Pension Scheme (UPS) offers a combination of benefits that combine elements from the Older Pension Scheme (OPS) and the National Pension Scheme (NPS).

From the OPS, the UPS incorporates features such as an assured pension, inflation indexation, family pension, and a minimum pension. These aspects provide a sense of security and stability to members post-retirement.

Additionally, the UPS also adopts a key feature from the NPS, which is a contributory, fully funded scheme. This ensures that members have the opportunity to contribute towards their pension fund, leading to a more personalized and potentially higher pension payout upon retirement.

Under the Official Pay Structure (OPS), the pension given to government employees, both at the central and state levels, was determined to be 50 percent of their last drawn basic pay, similar to the structure in the Universal Pay Structure (UPS). Furthermore, a Dearness Allowance (DA) was included, calculated as a portion of the basic salary, to compensate for the consistent rise in the cost of living.

Read More

OPS vs NPS: Difference Between Old Pension Scheme and New Pension Scheme, Advantage & Disadvantage

Some states have restored the Old Pension Scheme (OPS) instead of the New Pension Scheme or National Pension Scheme (NPS) for government employees. Both these schemes provide a monthly pension for the Central and State government employees after retirement. 

What is the Old Pension Scheme (OPS)?

The Old Pension Scheme (OPS) is a retirement scheme approved by the government. Government employees receive a monthly pension under the OPS. It provides a guaranteed pension for government employees who have completed

Under the OPS, the government pays the entire pension amount to government employees after retirement. Thus, no amount is deducted from employees’ salaries when they are in service.

After retirement, government employees receive the pension amount and the benefit of the revision of Dearness Allowance (DA) twice a year. Since they receive pensions based on their last drawn salary plus DA, their pensions increase when the DA increases twice a year. However, OPS applies only to government employees. 

Introduction of the National Pension Scheme (NPS) 

However, the National Democratic Alliance (NDA) government discontinued the OPS in 2004 and introduced the National Pension Scheme (NPS) for government employees. The government extended the scope of NPS for all citizens, including self-employed and unorganised workers, in 2009. It is a pension scheme where citizens can contribute an amount every month till 60 years and receive a pension after retirement.

The government launched the NPS as an alternative to the existing OPS to provide citizens with a secure and stable retirement income. However, it is a voluntary scheme administered by the Pension Fund Regulatory and Development Authority (PFRDA).

Under the NPS, government employees can contribute 10% of their basic salary plus Dearness Allowance (DA), and the government contributes 14% of the basic salary plus DA every month. Other citizens can contribute a minimum of Rs.500 monthly towards NPS.

NPS is a market-linked annuity scheme where an individual can invest a regular amount during employment and receive an annuity when they retire. The contributions are consolidated into a pension fund, which invests in a diversified portfolio of government bills, bonds, corporate shares, and debentures.

Professional fund managers regulated by the PFRDA, such as SBI, LIC, UTI, etc., manage the NPS investments. Upon retirement, an individual can withdraw up to 60% of the NPS amount and invest the remaining 40% with any of the ten professional fund managers to receive pension annuities as a monthly pension.

Employees who can opt for the Old Pension Scheme

When the government introduced NPS, all employees who joined service after 2014 were covered under the NPS, and they were not eligible to get a pension under OPS after their retirement.

However, in February 2023, the Department of Pension and Pensioner’s Welfare (DoPPW) provided Central Government employees with a one-time option to choose to get a pension under the OPS.

The Central Government civil employees who fulfil the below conditions can choose the OPS:

• Appointed for a vacant post advertised or notified before the NPS notification date, i.e. 22.12.2003

• Joined service on or after 01.01.2004

• Covered under the NPS

However, such eligible government employees should file for getting pension under the OPS before 31.08.2023. The employees who do not choose the one-time option within 31.08.2023 will continue to be covered under the NPS.

Old Pension Scheme advantages and disadvantages

Advantages of the OPS:

• It assures life-long income post-retirement.

• Employees get a pension under a predetermined formula, i.e. 50% of the last drawn basic salary plus DA or the average earnings in the last ten months of service, whichever is more.

• Employee’s pension increases with the revision of DA twice a year.

• There was no deduction from the salary of employees for pension payments.

• The government bears the expenditure incurred on a pension.

• It provides guaranteed, inflation and pay commission-indexed pension payments to retired government employees and their spouses.

Disadvantages of the OPS:

• It is a massive pension burden on the Central and State government.

• There is no corpus created for pensions which could grow continuously and reduce the government's liability for pension payments.

• It is unsustainable since the pension liabilities would keep increasing every year.

• Since life expectancy has increased due to better health facilities, resulting in longevity, the government has to bear the extended pension payouts.

National Pension Scheme advantages and disadvantages

Advantages of NPS:

• Employees can withdraw 60% of the corpus upon retirement, which is tax-free.

• Employees have more flexibility and control over NPS investments since they can choose the professional fund manager with the highest return.

• It provides higher returns regardless of equity or debt since qualified professional fund managers manage the NPS investments.

• A tax deduction is available for NPS contributions made every year during employment.

• PFRDA regulates NPS with transparent investment norms, regular performance reviews and monitoring of fund managers by NPS trust, making it a safe investment option.

• NPS accounts can be operated and managed online.

• Employees can withdraw the NPS contributions before retirement. They can withdraw a certain amount after ten years of opening the account, and three withdrawals are allowed till they reach 60 years.

Disadvantages of NPS:

• Employees should contribute 10% of their basic salary plus DA towards their monthly pension.

• The pension amount is not fixed since it is paid based on the return on investments made in market-linked instruments managed by professional fund managers.

• Many people are unaware of financial terms, such as equities, debt, securities, etc. Hence, they may fail to choose the best NPS fund manager for their investments. 

How is NPS better than the Old Pension Scheme?

The OPS provides a fixed amount of pension every month for government employees. They also get the benefit of increases in DA twice a year. For example, if a government employee’s basic monthly salary plus DA at the time of retirement is Rs.10,000, he would be assured of a pension of Rs.5,000 every month. Additionally, the monthly pension increases when the DA increases. If there is an increase of 4% in DA, the monthly pension will increase to Rs.5,200 (An increase of 4% is calculated upon the pension amount, i.e. Rs.5,000). 

However, under the NPS, the pension amount is determined by various factors, such as the amount of contribution, age of joining, type of investment and the income drawn from the investment.

For example, if an employee is 35 and the retirement age is 60, the total investing period will be 25 years. When his basic salary and DA is Rs.10,000, the monthly contribution towards NPS will be Rs.2,400 (10% employee contribution on Rs.10,000, i.e. Rs.1,000 + 14% government contribution on 10,000, i.e. 1,400). 

When the employee becomes 60 years, he will receive a monthly pension of Rs.4,595 when he invests 40% of the accumulated contributions in annuities. He will get the 60% of the accumulated contributions as a lump sum, i.e. Rs.13,78,607. Thus, he will get a monthly pension and a lump sum, which he can re-invest. When he invests 60% of the accumulated contributions in annuities, he will get a monthly pension of Rs.6,893 and get Rs.9,19,071 as a lump sum. 

Raising equity markets favour NPS over the long term. It benefits employees and relieves the government of the burden of pension payout. It gives a pension amount and retirement lump sum as against pension in the OPS. Though OPS looks convenient for employees, experts state that NPS is sustainable for the economy as the government bears the entire risk of inflation and longevity under the OPS.

Difference between Old Pension Scheme(OPS) and NPS

	Old Pension Scheme	National Pension System
Eligible employees	Only government employees	Government employees, individual citizens between 18-60 years and NRIs
Pension payment basis	Provides pensions to government employees based on their last drawn salary plus DA	Provides pension based on the investments made in the NPS scheme during their employment
Pension amount	50% of the last drawn salary plus DA or the average earnings in the last 10 months of service, whichever is more, is given as a pension	60% lump sum after retirement and 40% invested in annuities for getting a pension
Contribution	10% of Basic Pay by Employee to P.F. a/c. Pension will be paid by employer.	10% of B.P+D.A by Employee and 14% by Employer.
	Contribution by Empl. Will be with Dept/Bank/EPF.	Both Employee &Employer  Contribution will be with Fund Managers.
Charges	--NIL---	Charges will be deducted from contribution by POP,CRA,TRUSTEE BANK,CUSTODIAN, FUND MANAGERS etc., Will be charged for each and every transaction and for annual maintenance of a/c, securities. From F.Y. 2021-22 Bank will bear these charges.
Loans	Empl. may raise loan on security of P.F balance, for various needs at any time and repay.	No Loan facility. .
Withdrawals	Can withdraw up to 75% on non refundable basis for ward’s marriage or to construct house after 25 yrs of service.	1.Can withdraw 25% of employees contribution after minimum 10 years of service. Purpose: Marriage of ward, Education expenses for ward, construction of House , Medical Expenses for selected deceases.. 2.In case of VRS,etc., 80% of accumulated wealth will be used for pension/annuity. Only 20% will be given in cash.
Interaction	Easily interact with his own employer /H.O	Has to interact through computer/Internet with NSDL/PFRDA/FUND MANAGER. Difficult to analyze & choose Fund Manager as well as Type of scheme to invest.
Income tax benefits	No tax benefits	Employees can claim tax deductions of up to 1.5 lakh under Section 80C of income tax and up to Rs.50,000 on other investments under 80CCD (1b)
Tax on pension amount	Employee’s contribution to P.F. a/c is under 80C. P.F. accumulation, Pension, Commutation are fully exempted from Income Tax	Employers contribution is added to Income of the employee, but can be taken as investment apart from 1,50,000 limit under 80CCD(2). On retirement 60% will be paid in cash and is not taxable..   Other 40% will utilised for Pension and is tax free. But, Pension is taxable.
Returns	Empl. Contribution with 8.5% interest and Pension related to Basic Pay with D.A is assured for life.	Both the contributions are invested in Shares/ Debentures/ Govt. Bond No Guarantee on  return.
For Family	On the death of an empl., Family Pension is given to spouse throughout his/her life.	On the death of Empl. Wealth accumulated till date is given to the spouse .

Read More

Gratuity/Pension/NPS for Bankers/Bank Employees and other Government Employees

 

Gratuity:

 

	Gratuity Under Award	Gratuity under Act
Eligibility	a) The death of the employee, b) Employee becoming physically or mentally incapable of further service, c) Termination of Service d) Retirement on superannuation and e) On voluntary retirement or resignation after 10 years of continuous service	A) Retirement on superannuation B) Resignation after 5 years of service C) Death and D) Disablement
Formula for calculation	One month pay for each completed years of service (max) 15 months pay + 1/2 month pay for each year beyond 30 years of service.   *Pay = Basic Pay + Special Pay + Officiating Pay + PQP+ increment component of FPP. * Based on Average of the last 12 months. * Service of more than 6 months will be taken as one year.	15 days wages X No of years of Service  i/e., 15/26 X Wages X No of years of service.   *Wages = Basic Pay + DA + Spl. pay + PQP +Officiating Pay + increment component of FPP *One day Wage = Monthly wage divided by 26 * Based on Last drawn Salary * Service of more than 6 months will be taken as one year
Maximum Amount Payable	No ceiling	Max. Rs.20,00,000
Tax Exemption	Exemption up to Rs.20,00,000	Exemption up to Rs.20,00,000

 

 

Pension Scheme (Old) Highlights:
(to those who have joined before 01/04/2010)

 

1. Pension will be payable on retirement to permanent employees who have put in minimum of 10 years of service (on superannuation).

2. Pension is to be paid on 50% of the average of the pay drawn by an employee during the last 10 months of his service in the bank.
Here Pay refers to the Basic pay + Special Pay + PQP + Increment component of FPP (Basic Pension)

3. He is allowed to commute up to a maximum of 1/3 of his Pension and take a lump sum payment on the commutation value.

4. Dearness Relief is payable on Basic Pension. DA will be revised every half year according to rise and fall of Consumer Price Index.

5. Dearness Relief is payable on the full pension including the commuted value.

6. Completed service of 33 years will qualify for full pension. If the service is less than 33 years, proportionate pension shall be paid.

7. In case of an employee voluntarily retiring on completion of 20 years of actual service, his qualifying service shall be increased by a period not exceeding 5 years, so however, that the total qualifying service of such employee shall not in any case exceed thirty three years and also shall not take him beyond the date of superannuation.

8. For those employees who are retiring on superannuation, the notional service of 5 years shall not be added.

9. The commutation factor ( varies as per age) for a retiring employee who has completed 60 years will be 9.81.

10 Formula for calculating Commutation Value=
      1/3 of Basic Pension X 12 X Commutation factor.

Example:
If an employee gets a Pension of Rs.15000, he may commute a maximum of Rs.5000 and the commutation value will be =Rs.5000 x 12x 9.81= Rs. 5,88,600

 

Family Pension:  Payable after the death of Employee while in service or after retirement.

 

Scale of Pay per month	Amount of Monthly Family Pension
Upto Rs. 11,100	30% of the ‘pay’ subject to Minimum of Rs.2,785 per month
Rs. 11,101 to Rs.22,200	20% of the ‘pay’ subject to Minimum of Rs.3,422 per month
Above Rs. 22,200	15% of the ‘pay’ subject to Minimum of Rs.4,448 per month and Maximum of Rs.9,284

 

Details of National Pension Scheme(NPS) (to those who have joined after 01/04/2010)

 

NPS (National Pension System) is a defined contribution based Pension Scheme launched by Government of India .

It is applicable to Bank Employees who joined Banking industry on or after 01.04.2010.

It is based on a unique Permanent Retirement Account Number (PRAN) which is allotted to each Subscriber upon joining NPS.

PFRDA has now launched a separate model to provide NPS to the employees of corporate entities, including PSUs (including Banks). This model is titled "NPS - Corporate Sector Model".

On successful registration, a PRAN (Permanent Retirement Account Number) will be allotted to the subscriber. A PRAN Kit containing PRAN card, Subscriber details (referred as Subscriber Master List) and an information booklet is sent to the subscriber's registered address. The T-Pin and I-Pin are sent separately to the registered address. In case of the Corporate Sector subscriber, the PRAN Kit alongwith T-PIN & I-PIN will either be sent to the subscriber's registered address or at the Corproate Head Office as per the option selected by the Corporate.

The PRAN Card is a document with PRAN, subscriber's name, father's name, photograph and signature/thumb impression.

NPS Account Information:

The NPS Scheme offers 2 types of account

1.             Tier I account – it is also known as Pension Account. Withdrawal from this account is restricted till the Subscriber attains the age 60 years. Minimum yearly contribution requirement in this account is Rs.6000.

2.             Tier II account – it is a normal investment account. Withdrawal from this account can be done as per the need of the Subscriber. Minimum yearly contribution requirement in this account is Rs.250 however on 31st March of each year total value of units in this account should be equal to or more than Rs.2000

An active Tier I account is mandatory for opening Tier II account. Tier II account can be opened along with Tier I account or at any time after Tier I account opening.

Fund options:

NPS gives Subscribers option to invest according to their choice and risk appetite among three funds. Three funds under NPS are

1.             Equity (Asset Class E)

2.             Corporate Bonds (Asset Class C)

3.             Government Securities (Asset Class G)

Subscriber can switch the asset allocation once in a financial year.

Investment Options:

Depending on the expertise on taking call on right asset mix, Subscribers have 2 investment options under NPS

1.             Active Choice – Under this option, subscriber can select the asset allocation among Equity, Corporate Bonds and Government Securities as per his / her choice.

2.             Auto Choice – Under this option, fraction of funds invested across three asset classes is determined by a pre – defined portfolio which will be based on the age of the Subscriber. This is also known as Life Cycle Fund option.

Tax Implication of NPS:

§  Employer's contribution to NPS on behalf of the employee is treated as perquisite in the hands of the employees, but is deductible u/s 80CCD (2) of the Income tax Act, 1961 to the extent of 10% of basic salary. This deduction is over and above the limit of Rs.1.5 lac u/s 80 CCD (1). This will lessen the tax burden of the employee to the extent of amount deductible u/s80CCD (2) of the Income tax Act, 1961.

§  Contribution by individual employee is eligible for a deduction from Income under Section 80CCD (1) of the Income Tax Act 1961 upto Rs 1.5 Lakhs. However, investments under Section 80C Section 80CCC and 80CCD(1) should not exceed Rs.1.5 lakhs per assessment year to claim for the deduction.

An additional exclusive tax benefit of Rs.50,000/- under section 80CCD (1B) per assessment year (applicable from F.Y 2015-16/A.Y 2016-17) for NPS investments.

 

Withdrawal from Tier I NPS account:

Amount from Tier I account can be withdrawn only on exit from NPS. Exit from NPS can be done at any point of time. The payout would be made to Subscriber as per below chart

Withdrawal before the age 60 years	Up to 25% of Employee’s contribution can be withdrawn in lump sum. Three times before 60 years of age (but after 10 years of contribution) for the purpose of 1. construction of House property, 2. marriage/education of children, 3. medical treatment. (G.O. issued dated 11.05.2015)
Withdrawal on attaining the age 60 years	1.      Up to 60% of Corpus can be withdrawn in lump sum (No Tax on this withdrawal ) 2.      Minimum 40% of the Corpus needs to be invested in Annuity

Subscriber can opt for any of the following options to receive pension by way of purchasing annuity

Annuity Schemes:

After retirement ,Depending on the need, Subscriber can select any of the below mentioned annuity plan (i.e. monthly payment of a fixed amount or PENSION as commonly called) offered by Annuity Service Providers registered with PFRDA

 Annuity payable for life at a uniform rate to the annuitant only

Annuity payable for 5, 10, 15 or 20 years certain and thereafter as long as you is alive

Annuity for life with return of purchase price on death of the annuitant (Policyholder)

Annuity payable for life increasing at a simple rate of 3% p.a

Annuity for life with a provision of 50% of the annuity payable to spouse during his/her lifetime on death of the annuitant.

Steps to be followed to check NPS Balance:

 First we have to visit   https://cra-nsdl.com/CRA/ website which is the official website of Central Record Keeping Agency and of National Securities Depository Limited.

You can get Balance, growth, statement of accounts etc., from the above website.

Every month you will be getting SMS about the amount credited to your NPS account.

However, if SOT (Statment of Transanction) is required in soft copy, the subscriber can give a request through CRA toll free number 1800-222-080 using TPIN.
SOT for last three financial years can be requested.
The SOT will be sent through email in the email id registered with CRA.
This is not a chargeable service.

Alternatively, by login to CRA system using IPIN, the subscriber can print his/her SOT (available for the last three years).

 

1.The Union Cabinet recently passed a Bill that seeks to ask pension fund managers to offer minimum assured return options to investors. This will come into force only after Parliament passes the PFRDA Bill.

2. Under the existing laws, up to 60 per cent corpus on maturity can be withdrawn while at least 40 per cent has to be used to buy annuity. At present, returns from annuity insurance plans are not tax-free like Old Pension.

 

For more information, please visit https://npscra.nsdl.co.in/citizens-scheme-informaion.php

 

Read More