News

All about UPS: From how your pension will be calculated to income tax implications

Submitted by admin on August 27th, 2024

All about UPS: Right from the mode of calculating your pension, the taxes that go with it
The government has recently launched the team welfare eventually called the Unified Pension Scheme (UPS) for central government employees. This new scheme is expected to be implemented among the existing NPS subscribers including the retirees and would commence from 1st April 2025.

Under this UPS, the government’s share will increase to 18% which is sustainable than the current situation where the major mineral producer’s contribution is at its lowest. 9% of the basic wages and DA of the employee against 14% that was under NPS.

Such an increase is likely to lead to a 19% rise in pension payments targeted at employees and especially those earning starting salaries of about ₹ 50,000 as was reported in the media.

Here are all details related to the Unified Pension Scheme (UPS):Here are all details related to the Unified Pension Scheme (UPS):

What might be considered as main strengths of UPS?

Guaranteed pension: The scheme offers a pension of 50 per cent of the average basic pay of the last 12 months before pension for those employees with 25 or more years of service.

Those possessing service between 10 to 25 years will be paid in proportional to the pension amount with a minimum pension of ₹ 10,000.

Projected benefits: If an employee joins the company at 25 and retires at the age of 60, he surely would build pension corpus around ₹4. Under the UPS, the pension that one gets is of ₹2 and an amount of ₹26 crore is to be disbursed. 13 lakh.

This is compared with a corpus of ₹3. Five crores sixty-nine lakhs was granted on his resignation while ₹ 1 crore towards pension. 79 lakh under NPS.

Investment options: The employees will be charged with 10% of their basic pay and Dearness Allowance while the government will bear an amount of 18%. 5%. As with the tax sheltered annuity, the employee’s pension corpus will be divided between an individual fund and a pooled fund.
The latter comprises of an extra 8. 5% government contribution.

It allows the employees to decide how they would like to allocate their individual pension corpus while the assured pension will have some predetermined investment plan of Pension Fund Regulatory and Development Authority (PFRDA).

Withdrawal flexibility: The same can withdraw upto fifty six percent of their own pension corpus.

But this will mean proportionate cut on their assured pension amount.

UPS vs. NPS: Therefore, which of the recommendation types will be advantageous to the employees?

Whether to transits from NPS to UPS depends on the situations. Some financial experts have predicted it while others have not thought in this direction.

It also calls for for drawing the new employees’ attention to the potential benefits from their future equity market investments to justify their stay with NPS.

Some support the UPS because of the assured pension since this may attract employees who are near the retirement age.

What would be the taxes on UPS?

It is still not clear how UPS will be treated for tax purposes but, depending on this, withdrawals will be made at 60% tax-exempt, like NPS .