Differences between the Old Pension Scheme (OPS)/ AND (NPS) /(UPS)

Here’s a breakdown of the key differences between the Old Pension Scheme (OPS), the National Pension System (NPS), and the recently introduced Unified Pension Scheme (UPS):

1. Old Pension Scheme (OPS)

• Applicability: Primarily for central government employees who joined service before January 1, 2004. Some states have also reverted to OPS for their employees.
• Nature: Defined Benefit (DB) scheme.³ This means the pension amount is fixed and guaranteed
• Contribution: Non-contributory. Employees did not contribute directly from their salary towards their pension. The government bore the entire expenditure.
• Pension Calculation: Typically 50% of the last drawn basic salary plus Dearness Allowance (DA), or the average earnings in the last ten months of service, whichever is more. Pension increases with DA revisions twice a year.
• Risk: Borne entirely by the government. There’s no market risk for the employee.
• Lump Sum Withdrawal: No lump sum withdrawal option. The entire pension is paid out monthly.
• Financial Burden: Poses a significant and increasing financial burden on the government due to rising life expectancy and pension liabilities.

2. National Pension System (NPS)

• Applicability: Mandatory for all central government employees (except armed forces) who joined service on or after January 1, 2004.¹⁰ It’s also open to all Indian citizens, including private sector employees and self-employed individuals.¹¹
• Nature: Defined Contribution (DC) scheme.¹² The pension amount is not guaranteed and depends on the contributions made and the market performance of the investments.¹³
• Contribution: Both employee and employer contribute. For central government employees, the employee contributes 10% of basic salary + DA, and the government contributes 14%.
• Pension Calculation: The accumulated corpus at retirement is used to purchase an annuity from an Annuity Service Provider (ASP), which then provides a monthly pension.¹⁴ The pension amount is market-linked and not fixed.¹⁵
• Risk: Market-linked. The returns depend on the performance of the funds (equity, corporate bonds, government securities) chosen by the employee.¹⁶
• Lump Sum Withdrawal: At retirement, 60% of the corpus can be withdrawn as a tax-free lump sum, and the remaining 40% must be used to purchase an annuity.
• Flexibility: Offers flexibility to choose pension fund managers and investment options.¹⁷
• Tax Benefits: Provides tax deductions under various sections of the Income Tax Act (e.g., Section 80CCD).¹⁸
• Sustainability: Considered more sustainable for the economy as the risk is shared, and it creates a corpus fund.¹⁹

3. Unified Pension Scheme (UPS)

• Applicability: A newer scheme introduced by the government in August 2024, effective from April 1, 2025, specifically as an option for Central Government employees covered under NPS.²⁰ It aims to combine elements of OPS and NPS.
• Nature: Blends elements of defined benefit and defined contribution. It offers an assured payout while still being a fund-based system.
• Contribution: Employee contributes 10% of basic pay + DA. The government also contributes 10% to the employee’s UPS account, plus an additional 8.5% to a pooled corpus for assured pension.²¹
• Pension Calculation:
  • Assured Payout: Guarantees a pension amount of 50% of the average basic pay over the last 12 months before retirement for employees with at least 25 years of²² qualifying service.²³
  • Minimum Guaranteed Payout: A minimum assured payout of ₹10,000 per month is provided for employees with 10 or more years of service, subject to regular contributions and no withdrawals.
  • Proportionate Payout: For service years between 10 and 25, a proportionate pension is provided.²⁴
  • Market-linked component: While offering assured benefits, it also allows for potential market-linked growth due to contributions.²⁵
• Lump Sum Withdrawal: Provides an assured lump sum payout at retirement, and employees can also withdraw up to 60% of their retirement corpus at 60 years of age.
• Objective: Designed to address concerns of government employees regarding the market-linked nature of NPS and provide more assured benefits, while also ensuring the long-term sustainability that was a concern with OPS.

In Summary: