What is the Unified Pension Scheme? Examples of Payouts Across Various Scenarios

The Unified Pension Scheme ( UPS ) is an initiative the Central Government of India introduced under the National Pension System ( NPS ). The Scheme is effective from April 1, 2025, an optional framework for central government employees, available to employees currently under NPS who opt for UPS, and includes provisions for those who retire before the implementation date, subject to specified conditions.

Assured Payouts and Eligibility

UPS guarantees payouts in specific circumstances, creating a safety net for retirees. Employees who complete at least ten years of service are eligible for payouts starting from the date of superannuation. For voluntary retirees with a minimum of 25 years of qualifying service, payouts commence from their notional superannuation date, as if service had continued. Employees retired under FR 56(j), a provision for compulsory retirement not deemed a penalty, are also entitled to payouts from their retirement date.

Certain exclusions ensure a disciplined structure: employees dismissed, removed, or those resigning from service do not qualify for assured payouts under UPS.

Benefits Under the Scheme

1. Assured Payouts: UPS offers a monthly payout of 50% of the average basic pay from the last 12 months before retirement for those with at least 25 years of service. Employees with shorter service receive proportionate payouts, and a minimum guarantee of Rs. 10,000 per month is extended to those completing at least ten years of service.

2. Family Benefits: In case of a retiree’s demise, the spouse is entitled to 60% of the assured payout, provided they were legally wedded as of the retiree’s superannuation, voluntary retirement, or FR 56(j) retirement.

3. Dearness Relief (DR): Payouts under UPS are eligible for DR, calculated similarly to the Dearness Allowance for serving employees. DR is applicable only after payouts begin.

4. Lump Sum Payments: At retirement, employees receive a lump sum equivalent to 10% of their monthly emoluments (basic pay + DA) for every completed six months of service. This payment does not affect the assured payout.

Corpus Structure and Contributions

UPS operates on a dual corpus system:

• Individual Corpus: Funded by the employee and matched by the government, each contributing 10% of basic pay plus DA. Employees have investment control over this corpus, regulated by the Pension Fund Regulatory and Development Authority (PFRDA).
• Pooled Corpus: The government contributes an additional 8.5% of basic pay plus DA to a collective pool, ensuring the scheme’s sustainability and assured payouts.

Transitioning and Investment

Employees opting for UPS will have their existing NPS corpus transferred into their corpus under UPS. Regular updates on the value of individual and benchmark corpus calculated using default investment patterns and assumptions of timely contributions will be provided.

At superannuation or retirement, the individual corpus is transferred to the pooled corpus to authorize assured payouts. In cases of shortfall, employees can contribute additional funds to meet the benchmark. Any surplus in the individual corpus beyond the benchmark is credited to the employee.

Provisions for Past Retirees

Retirees under NPS before April 1, 2025, can transition to UPS. Adjustments include payment of arrears with interest at Public Provident Fund (PPF) rates. Monthly top-ups, determined by the PFRDA, consider previous withdrawals and annuities.

Disciplinary Proceedings

Special provisions govern employees facing disciplinary actions at retirement or post-retirement. Notifications will address the eligibility and payouts for such cases.

Finality and Exclusions

Once opted, the decision to adopt UPS is irreversible. Employees forfeit eligibility for additional policy concessions, post-retirement enhancements, or financial parity with future retirees.

Illustrative Examples of Unified Pension Scheme (UPS) Payout Scenarios

The Ministry of Finance has outlined various scenarios under the Unified Pension Scheme (UPS) to demonstrate how payouts are calculated. These examples use the following assumptions:

• The employee’s 12-month average basic pay before superannuation is Rs. 45,000 (denoted as PPP).
• The employee has a qualifying service of 25 years (300 months) or more (denoted as QQQ).
• All contributions are credited regularly with no missing credits.
• The employee has opted for the default investment pattern.
• No partial withdrawals were made by the employee.

Scenario 1: Full Conditions Met

The employee meets all specified conditions (1 to 5). At retirement:

• Individual Corpus (IC): Rs. 50,00,000
• Benchmark Corpus (BC): Rs. 50,00,000

The assured payout is calculated as:

Payout = BC/IC × 2/Basic Pay × 300/Months of Service

Substituting the values:

Payout = 50,00,000/50,00,000 × 2/45,000 × 300/300 = Rs. 22,500

Final Payout: Rs. 22,500 plus applicable Dearness Relief (DR).

Scenario 2: 15 Years of Service

The employee fulfills most conditions but has a shorter qualifying service of 15 years (180 months). At retirement:

• Individual Corpus (IC): Rs. 30,00,000
• Benchmark Corpus (BC): Rs. 30,00,000

The payout formula is:

Payout = BC/IC × 2/Basic Pay × 300/Months of Service

Substituting the values:

Payout = 30,00,000/30,00,000 × 2/45,000 × 180/300 = Rs. 13,500

Final Payout: Rs. 13,500 plus applicable DR.

Scenario 3: 10 Years of Service

The employee has 10 years (120 months) of service. At retirement:

• Individual Corpus (IC): Rs. 25,00,000
• Benchmark Corpus (BC): Rs. 25,00,000

The payout calculation results in:

Payout = BC/IC × 2/Basic Pay × 300/Months of Service

Substituting the values:

Payout = 25,00,000/25,00,000 × 2/45,000 × 120/300 = Rs. 9,000

However, as the minimum assured payout is Rs. 10,000, this amount is adjusted to Rs. 10,000 plus applicable DR.

Scenario 4: Missing Contributions

The employee has 25 years of service but some contributions were not credited. At retirement:

• Individual Corpus (IC): Rs. 45,00,000
• Benchmark Corpus (BC): Rs. 50,00,000

The payout is:

Payout = BC/IC × 2/Basic Pay × 300/Months of Service

Substituting the values:

Payout = 50,00,000/45,00,000 × 2/45,000 × 300/300 = Rs. 20,250

Final Payout: Rs. 20,250 plus applicable DR.

Scenario 5: Partial Withdrawals Not Recouped

The employee has made partial withdrawals and did not recoup them before retirement. At retirement:

• Individual Corpus (IC): Rs. 40,00,000
• Benchmark Corpus (BC): Rs. 50,00,000

The payout is:

Payout = BC/IC × 2/Basic Pay × 300/Months of Service

Substituting the values:

Payout = 50,00,000/40,00,000 × 2/45,000 × 300/300 = Rs. 18,000

Final Payout: Rs. 18,000 plus applicable DR.

Scenario 6: Higher Individual Corpus

The employee’s individual corpus exceeds the benchmark corpus due to investment choices. At retirement:

• Individual Corpus (IC): Rs. 55,00,000
• Benchmark Corpus (BC): Rs. 50,00,000

The payout calculation yields:

Payout = BC/IC × 2/Basic Pay × 300/Months of Service

Substituting the values:

Payout = 50,00,000/55,00,000 × 2/45,000 × 300/300 = Rs. 22,500

Additionally, the excess corpus of Rs. 5,00,000 is credited to the employee’s bank account.

Scenario 7: Lower Individual Corpus

The employee’s individual corpus is lower than the benchmark corpus. If the employee:

1. Does not recoup the shortfall:
2. Individual Corpus (IC): Rs. 45,00,000
3. Benchmark Corpus (BC): Rs. 50,00,000

Payout = BC/IC × 2/Basic Pay × 300/Months of Service

Substituting the values:

Payout = 50,00,000/45,00,000 × 2/45,000 × 300/300 = Rs. 20,250

• Partially recoups the shortfall:
• Adjusted Corpus: Rs. 47,50,000
• Benchmark Corpus (BC): Rs. 50,00,000

Payout = BC/IC × 2/Basic Pay × 300/Months of Service

Substituting the values:

Payout = 50,00,000/47,50,000 × 2/45,000 × 300/300 = Rs. 21,375

Lump Sum Payments on Superannuation

For employees with 25 years of service, a lump sum amount is provided:

Lump Sum = 1/10 × Total Emoluments × Number of Six-Month Periods

Example:
Basic Pay = Rs. 45,000
Dearness Allowance (53%) = Rs. 23,850
Total Emoluments = Rs. 45,000 + Rs. 23,850 = Rs. 68,850

For 25 years (50 six-month periods):
Lump Sum = 1/10 × Rs. 68,850 × 50
Lump Sum = Rs. 6,885 × 50 = Rs. 3,44,250

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