The issue of employee pensions has resurfaced once again after 20 years. Earlier in 2004, the central government replaced the Old Pension System (OPS) with the New Pension Scheme (NPS), leading to widespread protests from employees and their organizations. Now, the Narendra Modi government has introduced the Unified Pension Scheme (UPS), which aims to be an improvement upon the previous system.
However, employees are raising significant concerns about the clarity of retirement benefits under UPS, as the government has yet to provide clear details on the amount they will receive.
Several workers’ bodies have claimed that the government will not return the money deposited by employees, along with the accumulated interest. Instead, a fixed formula for receiving a lump sum amount upon retirement has been introduced.
Secretary of the National Council of Central Employees Shiv Gopal Mishra stated that they have raised their demand for the full return of the deposited money. However, the government has only agreed to provide a lump sum based on a fixed formula.
The government has outlined two formulas for calculating the lump sum amount provided upon retirement. According to the official notification, employees will receive Gratuity money and a lump sum amount based on a fixed formula. Let us find out through a case study how much a person who has worked for 25 years will receive upon retirement.
The Gratuity is calculated based on 15 days’ salary for every month of service. The formula involves multiplying the total duration of service by the last earned salary, then multiplying that amount by 15 days, and then finally dividing it by 26.
For example, if an employee’s last salary before retirement was Rs 1.30 lakh and they have served for 25 years, their total gratuity would amount to Rs 18.75 lakh, which will be provided upon retirement.
The government has introduced another formula for the lump sum amount under the Unified Pension Scheme (UPS). According to this, employees will receive 10 percent of their salary for every six months of service.
For example, if an employee has worked for 25 years with a monthy salary of Rs 80,000, the amount he earns in six months would be Rs 4.8 lakh. Ten percent of his six months of service (Rs 4.8 lakh) would amount to Rs 48,000. In his 25 years of service, there would be a total of 50 half-yearly periods in his entire job span. After multiplying this amount by the 50 half-yearly periods, it results in a total lump sum of Rs 24 lakh.
The government notification states that a lumpsum amount will be given in addition to gratuity as superannuation on retirement. Now if gratuity and lump sum amounts are added, the total amount will be Rs 42.75 lakh (adding Rs 24 lakh and Rs 18.75 lakh).Thus after working for 25 years, the person will get a total of Rs 42.75 lakh in hand on retirement.
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