Comparing India’s Pension Schemes: Delving Into The Differences Between OPS, NPS, & The New UPS
Updated: 28-01-2025 at 6:49 AM
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Financial security and safety are one of life’s most desired and crucial aspects. Pensions are one of the safest forms of ensuring the same during retirement and providing people with a consistent income after their working years. The government must ensure a strong and organised pension system to support government employees after a certain age and help them lead a peaceful life.
To ensure that the pension system remains steady and updated, the government launched various government pension schemes such as the Old Pension Scheme (OPS), the National Pension Scheme (NPS), and the recently launched Unified Pension Scheme (UPS). UPS is composed of all the missing components from the old schemes to provide pensioners with as much aid as possible and enhance their quality of living.
What Is The Old Pension Scheme (OPS)?
The Old Pension Scheme used to work in the early 2000s wherein the government employees were entitled to a fixed pension amount, calculated as per their last drawn salary. The pension was also subjected to change as per inflation by giving dearness allowances (DA) and helping pensioners keep up with the changing times also called the defined benefit model. However, the OPS was dependent on revenues generated from taxes to fund the pensioners’ accounts which was a burden for the government.
What Is The National Pension Scheme (NPS)?
The National Pension Scheme was introduced in 2004 and was designed for every government employee except those serving in the armed forces. Under this govt scheme, both the government and the employee were subjected to providing a certain amount to their pension fund also called the defined contribution model.
The total pension amount relied on the total of the contributions made by the employee and the government and the interest generated on the fund. After retirement, the employees had the option of withdrawing a lump-sum amount and the rest would be released monthly.
This model wasn’t perfect because it exposed the pensioners to face risks of the market and provided lower pensions compared to the OPS.
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What Is The Unified Pension Scheme (UPS)?
The Unified Pension Scheme was designed to fill in the gaps that were present in the OPS and the NPS. Some of its key features are:
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Hybrid Model: UPS follows a combination of the defined benefit and the defined contribution models to enhance the quality of the pensioners’ schemes by guaranteeing a fixed amount and also collecting revenue from both the government and the employee.
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Flexibility: UPS is comparatively more flexible and portable as it allows the employees to carry their benefits of the pension in different government and private sector jobs. It doesn’t restrict the employees to work for the government only.
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Social Security: UPS may also incorporate the features of social security so that everyone can avail the benefits of the pension scheme and secure their futures.
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Sustainable: UPS follows both the approaches used by the OPS and the NPS which makes it sustainable.
How Would The Pension Be Calculated Under The UPS?
The UPS will be effective from the 1st of April, 2025 and to avail of its benefits the employee should have a minimum of 25 years of service experience; however, employees who have served for at least 10 years are entitled to receive 10000 monthly. The amount of the pension will be half (50%) the average of one’s salary over a year. In case of unfortunate deaths of the pensioner, the family will receive 60% of the pension amount.
Read more: Exploring The Future of Govt Employees' Commuted Pension Restoration
Summary Of The Differences
| Features | Old Pension Scheme (OPS) | National Pension Scheme (NPS) | Unified Pension Scheme (UPS) |
|---|---|---|---|
| Model Used | Defined Benefit Model | Defined Contribution Model | Hybrid (combination of defined benefit & defined contribution models) |
| Guaranteed Pension | Given based on the last drawn salary | No guarantee | Guaranteed pension |
| Amount of the pension | Fixed | Variable | Guaranteed amount with an interest on the contributions made on investment |
| Inflation | Given through dearness allowance | Not given especially | Likely to incorporate |
| Coverage | Only for government employees | Mandatory for govt. employees except those in the armed forces and optional for others | For both govt. and private-sector employees |
| Portability | No portability | Limited portability | Pension can be taken to different sectors |
Read More: The PM Kisan Maan Dhan Yojana Helping Unorganised Workers In India
Conclusion
The pension schemes have gone through evolution and paved the way for the Unified Pension Scheme which aims to become a perfect blend of the OPS and the NPS to improve the pensioners’ lives.
If you’ve any queries, you can contact the Department of Pensioners’ Welfare by writing to their official mail.
You can also reach out to Jaagruk Bharat through their community page with any questions that you might come across.
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