GD Topic: Unified Pension Scheme (UPS): Is it Beneficial for Retiring Employees or Just an Eyewash?

The Group Discussion topics in top MBA colleges like IIMs, XLRI, MDI, FMS are more and more getting associated with current affairs, social and economic issues. One of such GD topics that is making rounds in B-school admission process, class-1 and class-2 services recruitment process, is recently introduced ‘Unified Pension Scheme (UPS)’ which proposes to address the challenges in conventional pension models and suggests a more inclusive approach to addressing India’s retirement security needs across all sectors of the workforce. The arguments forwarded for and against are many and the process of discussion brings new avenues of positive and negative impacts on whether the UPS brings some substantial beneficial changes in Pension scheme or simply an eye wash. Shared below is the solved GD topic, with the key facts and arguments on the UPS

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What is Unified Pension Scheme (UPS)?
In a bid to fulfil a long-standing demand of government unions, the Union Government on Saturday, August 24, 2024 unveiled a New ‘Unified Pension Scheme (UPS)’. The scheme is also referred to Universal Pension scheme. The UPS proposes to replace the National Pension Scheme (NPS) and Old Pension Scheme (OPS) or any other prevalent pension scheme with this new scheme. The Proposed UPS assures government employees half of their last drawn salary as a lifelong monthly benefit in form of Pension. According to its draft proposal, the UPS will assure a pension payment amounting to 50% of the average basic pay received by the employee during the final 12 months before retirement. Under the UPS, the assured pension will be the average basic salary + DA drawn in the previous 12 months before superannuation. This would mean that government employees, at retirement, will get 50% of the average of the last 12 months' salary + DA.

Benefits of Unified Pension Scheme (UPS)
The new Unified pension scheme (UPS) for the government employees primary objective is to consolidate various pension systems existing in the country into a unified framework. The initiative serves as a clear demonstration of PM Narendra Modi's steadfast dedication to driving reform efforts that promote sustainable fiscal practices and safeguard the welfare of retired individuals nationwide. The scheme guarantees a fixed pension, and it is expected to positively impact approximately 23 lakh central government employees.
The new UPS scheme is designed to be accessible to existing participants of the New Pension Scheme (NPS). Key benefits of UPS are:

• The UPS, which has been approved by the Union Cabinet, has several other features benefiting pensioners, such as a periodic dearness relief hike in line with inflation and minimum pension of Rs.10,000 a month for pensioners with at least 10 years of government service among others
• Employees opting for Unified Pension Scheme would be eligible for an assured pension of 50 per cent of their average basic pay drawn over the last 12 months before superannuation, with a minimum qualifying service of 25 years. This pension would be proportionately reduced for lesser service periods, down to a minimum of 10 years of service.
• An assured family pension amounting to 60 per cent of the pension drawn by the employee before his/her demise will be provided
• At retirement, employees will be eligible for a lump sum amount in addition to gratuity. This will be calculated as 1/10th of the monthly emolument (basic pay+DA) as on the date of superannuation for every completed six months of service.
• For those who are retired or retiring under the NPS until March 31, 2025, the benefits of the UPS will apply, and they will be eligible for arrears. If they opt for UPS, there would be no additional burden
• The employee’s contribution remains at 10 per cent of the salary (basic+DA), while the government’s contribution increases from 14 per cent to 18.5 per cent.

UPS Vs NPS: Key Difference
Unified Pension Scheme (UPS) is proposed to be implemented from April 1, 2025 taking over the present National Pension Scheme (NPS). Major differences in UPS and NPS are:

• In the UPS, the governmental allocation will witness an elevation to 18.5% of the worker's core wage and dearness allowance (DA), as opposed to the existing 14% allocated under NPS.
• The creation of the UPS stemmed from significant dissatisfaction among employees regarding reduced corpus and returns associated with the National Pension System (NPS), along with the removal of the Old Pension Scheme (OPS)
• UPS also includes a provision for a lump sum payment based on service length, while Under the National Pension System (NPS), pensioners receive 60% of their accumulated corpus as a tax-free lump sum at retirement. The remaining 40% is invested in an annuity, providing a monthly pension subject to income tax. While equities have historically outperformed other investments over the long term, NPS subscribers can only invest up to 15% of their corpus in equities. Since no employee contribution was made to the OPS, there were no tax benefits accessible.

How the Pension under Unified Pension Scheme is calculated? Key Facts
Highlighting the calculation of Pension under Unified Pension Scheme, Ashwini Vaishnaw, Minister of Information and Broadcasting of India, said "Upon 30 years of service, approximately six months' worth of pay will be disbursed as a lump sum upon retirement." This payment will be separate from gratuity.

• Under the UPS, the assured pension will be the average basic salary + DA drawn in the previous 12 months before superannuation. This would mean that government employees, at retirement, will get 50% of the average of the last 12 months' salary + DA.
• Under the Uniform Pension Scheme (UPS), an employee is mandated to contribute to the pension fund. This requirement mirrors an employee's contribution to the National Pension System (NPS). As outlined in a report by The Times of India, employees are expected to allocate 10% of their basic pay and dearness allowance towards the UPS. Additionally, the government's share in the UPS contributions is set to rise from the current 14% contributed to the NPS to 18.5%
• UPS will assure a pension payment amounting to 50% of the average basic pay received during the final 12 months before retirement.
• Individuals with a tenure of 25 years will be entitled to the full pension amount, while those with a minimum of 10 years of service will receive a proportionate pension with a guaranteed minimum of Rs 10,000.
• The family pension to the spouse pegged at 60% of the deceased government employee's pension.
• The Unified pension scheme offers lump sum payment at the time of superannuation. The lumpsum payment will be calculated as 1/10th of monthly emoluments (Pay + DA) as on the date of superannuation for every six months of service completed. This payment will not reduce the quantum of assured pension, as per the government’s press release.
• The Lumpsum payment is determined using the Commutation Table. The monthly pension amount will be decreased by the commuted portion, which will be reinstated after 15 years from the date of receiving the commuted pension value. Dearness Relief will be calculated based on the original pension amount, without taking into account the reduction from the commuted portion.
• The formula for arriving for commuted value of Pension (CVP) is: CVP = 40 % (X) Commutation factor* (X) 12.

Is Unified Pension Scheme an Eye Wash?  
Many leaders and trade unions have started protesting against the UPS terming it Not a Good pension scheme over Old Pension Scheme and find it an election propaganda. Key criticism areas are:

An election gimmick: The rollout of the Unified Pension Scheme has taken employees and the Opposition by surprise as they consider that  Modi government is eyeing upcoming State elections

UPS may Attract Taxation: While details on the taxation of Universal Pension Scheme (UPS) are still awaited, it is expected that pension income under UPS will be subject to income tax. The treatment of lump-sum payments is also unclear at this time. The UPS also includes a provision for a lump sum payment based on service length, but the tax treatment of this payment remains unclear

Protest by Trade Unions: Central trade unions affiliated with the opposition parties took a stand against the UPS. The Hind Mazdoor Sabha claimed the new scheme was meant to mislead employees, while Left-affiliated unions like the All India Trade Union Congress and Centre of Indian Trade Unions criticised the Modi-led government, accusing it of using the UPS to further its “neoliberal pursuit of safeguarding the interests of speculative crony capital”. Recently Himachal Pradesh Government implemented the Old Pension Scheme (OPS) and now the Himachal Government employees want the OPS to continue instead of implementing UPS

Burden on Exchequer: According to outgoing Finance Secretary and current Cabinet Secretary-designate T.V. Somanathan, the expenditure for arrears would be approximately Rs.800 crore, and the exchequer would bear an additional burden of Rs.6,250 crore for the enhanced contribution of 18 per cent in the first year. If any State government joins the UPS, they would bear the additional burden for their employees’ assured pensions.

Concluding Remarks: UPS is Better
On August 25, Maharashtra became the first State to approve the UPS, deciding to implement it for all State government employees. The UPS appears to be an attempt by the government to combine the best aspects of both pension schemes. While retaining a slightly modified version of the market-linked defined contribution system, it reintroduces an assured minimum pension, making it comparable to the OPS. Shiv Gopal Mishra, secretary of a joint forum of government employees’ organisations, welcomed the UPS, stating that “90 per cent of the provisions under the OPS are there under the UPS”. The trade union Bharatiya Mazdoor Sangh, while noting some lack of clarity, supported the move, saying that the Centre had attempted to address the NPS’ shortcomings through the UPS

Hope this topic discussed in detail must have been found useful for you to know all about Unified Pension Scheme (UPS) and its Pros & Cons to form a good opinion in Group Discussion. MBAUniverse.com will post more relevant topics to help you getting through the GD, WAT and PI round
 

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