What is Universal Pension Scheme: Key Details and Benefits Explained

The Central Government is considering the Universal Pension Scheme aimed at bringing an integrated pension provision to all sections of people, irrespective of employment status or background.

This scheme provides financial security to everyone, whether self-employed, salaried, gig workers or others. This is a big step by the government to ensure social security and help retired people live dignified lives.

Find out more about the Universal Pension Scheme, its key features, benefits and more.

What is Universal Pension Scheme?

The Universal Pension Scheme is a voluntary contribution scheme to receive benefits (pension) after retirement. It seeks to provide a structured pension scheme in India and extend social security beyond conventional employment to a broader population. Thus, this scheme will be open to all, i.e., salaried workers, unorganised sector employees, and self-employed individuals.

Currently, people working in the unorganised sector do not have access to government-run large savings schemes, so they are unable to build a huge pension fund. However, the Universal Pension Scheme will allow them to build their pension over time by contributing to it.

Additionally, the pension schemes offered by the government for people working in the unorganised sectors, such as Atal Pension Yojana (APY), Pradhan Mantri Shram Yogi Mandhan Yojana (PM-SYM), and other existing pension schemes will be consolidated under the Universal Pension Scheme. Thus, this scheme will be an umbrella scheme, making pensions more accessible and beneficial to the beneficiaries.

Need for Universal Pension Scheme

The idea behind the Universal Pension Scheme is to simplify the country’s pension system and savings structure by consolidating some existing schemes. This scheme would help people from all sections of society to have a secure voluntary savings option.

Many developed countries, including Russia, the US, China, Canada, and most European nations, have a structured social security system that covers healthcare, pensions, and unemployment benefits. Countries like Sweden, Denmark, the Netherlands, Norway, and New Zealand offer universal pension schemes to secure the financial status of their elderly population. 

India’s social security system primarily relies on the provident fund system, health insurance and old-age pension schemes for targeted beneficiaries (particularly those below the poverty line). The Universal Pension Scheme aims to create an inclusive and sustainable pension system by expanding its coverage for the country’s entire workforce.

Thus, this scheme would be open to everyone and not tied to employment, allowing citizens from all sectors to contribute and build a pension fund over time.

Existing Pension System in India

There are several existing pension schemes in India, which are as follows:

Employee Provident Fund (EPF)

The EPF is a mandatory pension scheme for employees in the organised sector. Employees contribute 12% of their basic salary to the fund every month, and employers contribute 8.33% of the employee’s basic salary to the fund every month. This is a post-retirement fund where employees can withdraw contributions after 2 months of unemployment or after retirement.

National Pension Scheme (NPS)

The NPS is a voluntary pension scheme for all citizens in India. Individuals can make contributions to the scheme either monthly or annually. After 60 years, they can withdraw 60% of the accumulated amount and must invest the remaining 40% in annuities that will provide returns throughout their life.

Atal Pension Yojana (APY)

The APY is mainly for poor, underprivileged, and unorganised sector workers. Under this scheme, when individuals make voluntary contributions of a certain amount for a minimum of 20 years, they will receive a guaranteed pension of Rs. 1,000 to Rs. 5,000 per month after turning 60 years, based on their contributions. 

Pradhan Mantri Shram Yogi Mandhan Yojana (PM-SYM)

The PM-SYM is a pension scheme for workers from the unorganised sector. Under this scheme, beneficiaries need to make monthly contributions ranging from Rs. 55 to Rs. 200 until they reach 60 years. After 60 years, they will receive a minimum assured pension of Rs. 3,000 per month. 

Pradhan Mantri Kisan Mandhan Yojana (PM-KMY)

The PM-KMY is a pension scheme for small and marginal farmers, who need to contribute Rs. 55 to Rs. 200 every month. Upon reaching 60 years, beneficiaries will receive a minimum fixed pension of Rs 3,000 per month.

National Pension Scheme for Traders and Self-Employed (NPS-Traders)

The NPS-Traders scheme is a pension scheme for retail traders, shopkeepers and self-employed persons. The beneficiaries must contribute a monthly amount ranging from Rs.55 to Rs. 200 till they reach 60 years. Upon reaching 60 years, they will receive a minimum assured pension of Rs.3,000 every month.

Swavalamban Yojana (NPS-Lite)

The Swavalamban Yojana, or NPS-Lite, is a pension scheme for the underprivileged section of society. Individuals should contribute a minimum of Rs. 1,000 annually to receive a pension. The government will contribute Rs. 1,000 annually. Upon reaching the age of 60 years, beneficiaries can withdraw 60% of the accumulated fund and invest the remaining 40% in annuities, which will give them a monthly pension of Rs. 1,000.

Apart from these schemes, many other state government schemes provide pensions to the residents of their respective states. Under the Universal Pension Scheme, the Central Government will encourage the state governments to merge their pension schemes with this scheme to increase pension payments and avoid duplication of beneficiaries.

Key Features of Universal Pension Scheme

The key features of the Universal Pension Scheme are as follows:

Available to all citizens

The Universal Pension Scheme is a pension plan open to all citizens above 18 years, including salaried employees, informal and unorganised workers and self-employed individuals.

Voluntary Scheme

This scheme is a contributory and voluntary pension scheme, which means people can contribute to their retirement savings on their own. This gives them flexibility in their financial management.

Umbrella Scheme

This will be an umbrella scheme which will integrate many schemes, such as the PM-SYM, NPS-Traders, etc., into a single system. Thus, it will make processes easier and provide better benefits to subscribers.

Beneficiaries

While this scheme is open to all citizens, it primarily targets unorganised sector workers, traders, and self-employed individuals who do not have access to conventional pension plans.

Pension 

The beneficiaries will receive a pension upon reaching 60 years, giving them a regular income and financial security in their old age.

Benefits of Universal Pension Scheme

• The Universal Pension Scheme unifies existing pension plans, which enhances accessibility and financial security.
• It gives security to people in their old age, providing them with a regular source of income.
• It fills the gap in social security coverage for people who are outside the formal employment sector because it is inclusive of all.
• Unifying various current schemes and bringing them under this scheme will streamline the administrative process, minimise bureaucratic barriers and facilitate ease in pension contributions.
• This scheme will provide a structured pension system for a larger section of society in India.

Implementation Strategy for Universal Pension Scheme

The Employees’ Provident Fund Organisation (EPFO), the authority responsible for regulating and maintaining provident funds in India, is currently working on the Universal Pension Scheme. This scheme is at a preliminary stage. Once the final framework is in place, the government will hold consultations with key stakeholders to refine it and implement it.

How the Universal Pension Scheme Differs from EPFO?

EPFO is for employees in the organised sector, while the Universal Pension Scheme will cover employees and workers from all sectors, including unorganised sector workers, gig workers, platform workers, and self-employed individuals.

Apart from this, employers contribute 8.33% of the basic salary of the employees to EPF. However, under the Universal Pension Scheme, contributions are voluntary, and the government will not make any.

Will the Universal Pension Scheme Replace NPS?

The Universal Pension Scheme will not replace the NPS, which is also a voluntary pension scheme. The Central Government has recently announced that the Unified Pension Scheme (UPS) is a sub-set of the NPS. Thus, UPS will be available as an option under the NPS for government employees.

The Universal Pension Scheme will act as a key scheme to improve the social security system in India. It will be a comprehensive and inclusive scheme to provide pensions to all. It is a voluntary and affordable pension scheme that will allow all to secure their future financially.