The Jan 2025 Gazette Notification has defined the workings of the Unified Pension Scheme. We’ve got up to date our free NPS vs UPS calculator, contemplating these modifications. On this article, we offer a easy rationalization of the method used to compute the pension utilizing the identical terminology used within the notification.
UPS pension = (P/2) x (Q/300) x (IC/BC)
- P = 12 month-to-month common fundamental pay earlier than superannuation
- Q = Qualifying service in months. If Q is > 300 (25 years) it will likely be set as 300
- If (P/2) x (Q/300) is lower than Rs. 10,000 it will likely be taken as Rs. 10,000
- IC = particular person corpus. The contribution of workers will likely be 10% of (fundamental pay + Dearness Allowance). The matching Central Authorities contribution will even be 10% of (fundamental pay + Dearness Allowance). Each will likely be credited to every worker’s particular person corpus.
- BC = benchmark corpus. That is an imaginary corpus that can develop with the above talked about contributions at a charge decided by a default asset allocation designated by the Pension Fund Regulatory and Growth Authority which regulated the NPS. This asset allocation ought to be one thing much like the default allocation for presidency workers with 15% fairness and relaxation in bonds.
- Word in additition to the above, there will likely be a pool corpus with further Central Authorities contribution. 8.5% of (fundamental pay + Dearness Allowance) of all workers who’ve chosen the Unified Pension Scheme possibility, to the pool
corpus on an combination foundation. This corpus is to make the UPS sustainable and make assured payouts doable. This is not going to assist particular person workers in any manner (besides when the pensions is decrease than Rs. 10,000 and is ready as Rs. 10,000)
Now think about the next conditions.
- If the worker chooses the default allocation, contributes frequently and doesn’t withdraw whereas in service, IC = BC or IC/BC =1.
- If the worker finally ends up with a decrease corpus than the benchmark corpus for any purpose – decrease returns than benchmark, partial withdrawals or irregular contributions than IC/BC will likely be lower than one and the assured pension will likely be correspondingly decrease.
- If the staff finally ends up with a higer corpus then the benchmark due to extra returns, then for the pension calculation IC/BC =1. Nevertheless the surplus corpus will likely be paid out as lump sum at retirement.
Instance 1
- P/2 = 25,000
- Q/300 =1
- IC/BC =0.8
UPS pension = (P/2) x (Q/300) x (IC/BC) = Rs. 20,000 plus relevant dearness aid
Instance 2
- P/2 = 25,000
- Q/300 =1
- IC = 1 Crore
- BC = 80 Lakhs
- IC/BC =1 for the calculation
- IC – BC = Rs. 20 Lakhs will likely be paid out as lump sum at retirement.
UPS pension = (P/2) x (Q/300) x (IC/BC) = Rs. 25,000 plus relevant dearness aid
UPS Lump sum method
- BP = Fundamental pay as on the date of superannuation
- DA = Appicable Dearness Allowance
- L =variety of six-monthly accomplished years of service based mostly on the variety of months for contribution to particular person’s pension corpus. Or L = no of years in service x 2.
- No lump sum will likely be payable, if the service size is lower than 10 years (lower than 120 months of contribution), as Unified Pension Scheme just isn’t relevant in such a case.
UPS Lump sum = BP*(1+DA)*L/10
Instance 3
- BP = Rs. 50,000
- DA = 50%
- L = 400 months
UPS Lump sum = 50000*(1+50%)*400/10 = Rs. 30 lakhs
Additionally see: Revised UPS vs NPS Calculator after Jan 2025 Gazette Notification
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