NEW DELHI: The Union government is set to intensify the outreach programme to encourage its employees to switch over to the new Unified Pension Scheme (UPS), which has seen a muted response since its roll-out on April 1.
Teams of officials from the Pension Fund Regulatory and Development Authority and the finance ministry are spearheading the campaign to educate the employees and civil accounts officers about the benefits of UPS, which guarantees a pension at 50% of the last 12 months’ average pay, sources said.
Employees in each government department are given PowerPoint presentations about the salient features of the scheme and how it is different from the market-linked pension under the National Pension System (NPS) without any guarantee. The employees are shown the procedure on how to switch from NPS to UPS seamlessly.
On Wednesday, the Institute of Government Accounts and Finances is also organising a training programme for Indian Civil Accounts Service officers on the UPS in view of a large volume of queries being raised by individual officers regarding the comparative benefits, procedural requirements, and operational mechanisms of both schemes. They will be thoroughly acquainted with the features, eligibility conditions, financial implications, and implementation processes of the UPS
In the meantime, NPS Trust has launched the UPS Calculator. The calculator provides pension estimates to the subscribers under both NPS and UPS. This tool will assist subscribers in making informed choices while choosing the right pension plan.
The awareness campaign in war footing has gathered steam as less than 10,000 employees have so far switched to UPS from NPS after it was rolled out on April 1, which is paltry compared with 2.7 million central government employees under NPS. The existing employees have to decide on switching to UPS by June 30 as per the extant guidelines.
The central government staff are weighing the cost-benefit between NPS and UPS as once the choice is exercised, it is irreversible.
No capital return option under UPS, longevity of service and higher individual corpus under NPS are among factors being debated by the employees before making up their mind on the switch.
Many factors may be playing out in the mind of employees before exercising before deciding closer to the deadline, said Kulin Patel, CEO, partner at KA Pandit Consultants and Actuaries.
“Many are possibly still not fully aware or understanding the differences, and so they stick to what they have (under NPS),” Patel said, referring to the fact that UPS gives inflation-linked pension whereas NPS annuities don’t offer that.
“For a few people, NPS might be better in their personal situation, given the past corpus has done well, and so they don’t want to give that up.”
UPS will provide assured pension of 50% of average basic pay of last 12 months of service upon superannuation for all employees completing minimum 25 years of service, with value of such deferred compensation fully indexed to inflation.
According to the extant NPS norms, a maximum of 60% of the accumulated NPS corpus from contributions during a person’s working years is allowed to be withdrawn tax-free at the time of retirement. The subscriber has to invest a minimum of 40% of the corpus in annuities for a regular pension.
In the current NPS architecture, a subscriber may purchase units with the return of purchase price (capital), in which case she may get lower returns. In UPS, however, there aren’t any such options. Once the death of the dependent, annuity will cease, and no further payment or capital return is required as it is a joint life annuity without return of purchase price.
Under UPS, the employee contribution shall remain unchanged at 10% (of basic pay + DA). The government’s contribution will increase from the present 14% (under the market-linked national pension system) to 18.5%.
If a government subscriber withdraws up to 60% of the corpus in a lump sum after superannuation from the individual account (built from 20% of basic pay +DA) under UPS, there will be a proportionate reduction in the guaranteed pension. In the case of NPS, if the withdrawal is 60%, the balance 40% corpus could be bigger, given that the corpus is built from a monthly contribution of 24% (Centre 14% + employee 10%) compared to a 20% corpus in the individual UPS account of the subscriber.
Source: The Financial Express
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