NPS and UPS Pensioners to Get Equal Gratuity Benefits

19 Jun 2025 GS 2 Governance
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  1. New Rule:

    • The Personnel Ministry has announced parity between National Pension Scheme (NPS) and Unified Pension Scheme (UPS) pensioners in gratuity eligibility.

    • Both will now receive a maximum gratuity of ₹25 lakh.

  2. Additional Benefit:

    • If a government employee dies in service or is discharged due to disability/invalidity, they (or their family) can opt for benefits under the Old Pension Scheme (OPS) instead of NPS.

 What is Gratuity?

  • A lump-sum payment given by an employer to an employee as a reward for long-term service.

  • Eligibility: Usually paid after 5+ years of continuous service (or on retirement/death).

  • Amount: Based on last drawn salary and years of service (₹25 lakh cap for govt employees).

Difference Between NPS, UPS, and OPS

Pension SchemeDescriptionKey Feature
NPS (National Pension Scheme)A contributory pension system where employees and govt both contribute.Market-linked returns, no fixed pension.
UPS (Unified Pension Scheme)A centralized pension system for certain govt employees.Defined benefits, but less common than OPS/NPS.
OPS (Old Pension Scheme)Traditional pension (pre-2004) where retirees get fixed monthly pension + DA. Fully govt-funded, no employee contribution.

Why This Parity Matters?

  • Earlier, NPS employees got lower gratuity than UPS/OPS retirees.

  • Now, all govt pensioners (NPS/UPS) will get equal gratuity (₹25 lakh).

  • Disability/Death Cases: Employees can switch to OPS benefits for better security.

How NPS Pension Works:

  1. Contributions:

    • Employee and employer/government contribute regularly during service.

    • Typically, 10% of basic pay + DA is contributed by the employee, and an equal amount by the government.

  2. Accumulation:

    • This amount is invested in market-linked instruments (equity, debt, govt bonds).

    • Returns vary — no guaranteed amount.

  3. At Retirement (Usually at 60):

    • You can withdraw up to 60% of the total corpus as a lump sum (tax-free).

    • Remaining 40% must be used to buy an annuity plan from an IRDA-approved insurer.

  4. Annuity = Monthly Pension:

    • The annuity provides a monthly pension, but:

      • Amount depends on total savings,

      • Annuity provider, and

      • Type of annuity chosen (e.g., life pension, joint pension, pension with/without return of capital).

 Example:

  • Suppose your NPS corpus at retirement is ₹50 lakh:

    • ₹30 lakh (60%) can be withdrawn as lump sum.

    • ₹20 lakh (40%) goes to annuity → generates a monthly pension, say, ₹15,000–20,000 (depending on rates).

 Key Point:

Unlike OPS, where pension is fixed (e.g., 50% of last salary), NPS pension is variable and not government-funded after retirement.



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