Page 48 - Banking Finance May 2025

ARTICLE

Inflation Protection: Annual adjustments based on 1. UPS Trust: Independent body managing the pension
Consumer Price Index fund
Risk Management Systems 2. Investment Committee: Professional experts directing
investment strategy
To maintain financial stability while providing guarantees,
the UPS includes: 3. Actuarial Board: Regular assessment of fund adequacy
Reserve Fund: A portion of contributions set aside for
4. Subscriber Council: Ensuring employee input in
market downturns
decisions
Risk Sharing: Mechanisms to distribute exceptional
5. Regulatory Oversight: Supervision by PFRDA
losses across different age groups
Contribution Rate Reviews: Periodic actuarial The system uses advanced technology including:
assessments that may adjust contribution rates A unified digital platform for all pension activities

Customized Structures: Different guarantee Secure record-keeping
frameworks for different employment categories Personalized retirement projections

Governance and Administration Mobile-accessible services
The UPS is managed through: Secure authentication for benefit payments

Comparing the Three Pension Systems
Understanding the differences between India's three pension systems helps assess their economic impacts:

Feature Old Pension Scheme (OPS) National Pension Unified Pension Scheme (UPS)
System (NPS)
Pension Amount 50% of last drawn basic pay Based on investment Minimum 50% of average basic
returns pay of last 12 months
Funding Method Unfunded, pay-as-you-go Fully funded by contributions Hybrid: funded with guarantees
Investment Risk Government bears all risk Employee bears all risk Risk shared between employee
and government
Inflation Dearness Relief twice yearly Depends on annuity chosen Indexed to inflation
Protection
Cost to High, unlimited liability Low, fixed contributions Moderate, limited guarantees
Government
Market None High Moderate
Investment
Employee None 10% of basic pay + DA 10% of basic pay + DA
Contribution
Government Entire pension cost 14% of basic pay + DA 14% of basic pay + DA plus
Contribution guarantee backing
Job Mobility Limited to government jobs Fully portable between jobs Portable with adjusted guarantees
Benefit High Low Medium-high
Predictability
Family Benefits Family pension at 30% Depends on accumulated Enhanced family pension with
amount guarantees

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