Context:
The Finance Ministry recently notified the operationalization of the Unified Pension Scheme (UPS) for central government employees, effective from April 1, 2025.
More on the News
- The UPS will be applicable to Union government employees who are already covered under the National Pension Scheme (NPS) and the employees will have the option to choose between the NPS and the UPS.
- Those who do not opt for the UPS, will remain covered by the NPS but their pension incomes will be linked to the asset they build up over their working years, with no assurances of any kind.
- Earlier, the Union Cabinet had approved the UPS in August 2024.
- The Cabinet decision was based on recommendations of a committee under T.V. Somanathan, set up in March 2023, to review the NPS for government employees in a way that balances employees’ aspirations with fiscal prudence.
What is the Unified Pension Scheme?
The UPS aims to balance fiscal discipline and employee benefits by combining the guaranteed pension features of the Old Pension Scheme (OPS) with the contributory elements of the National Pension Scheme (NPS).
The NPS will continue and both existing as well as future employees will have an option of joining NPS or UPS. However, an employee can exercise his choice only once, which will be final.
- The provisions of UPS will also apply to past retirees of NPS (who have already superannuated) and their arrears for the past period will be paid with interest.
There would be no additional burden on employees opting for UPS. The employee’s contribution would remain 10%, while the Government will provide additional contribution for implementing UPS.
- The government contribution will increase from 14% to 18.5%.
The same architecture has been designed for adoption by State Governments. If also adopted by State Governments, it can benefit over 90 lakh State government employees who are presently on NPS.
Key features of UPS
Assured Pension: Government employees with at least 25 years of service will receive a guaranteed pension equal to 50% of their average basic pay from the last 12 months before retirement.
- Employees with less than 25 years of service but more than 10 years will receive a pension on a proportionate basis.
Assured Minimum Pension: In the case of retirement after a minimum of 10 years of service, the UPS provides for an assured minimum pension of Rs 10,000 per month.
Assured Family Pension: Upon a retiree’s death, their immediate family would be eligible for 60% of the pension last drawn by the retiree.
Inflation Indexation: Dearness relief will be available on these three kinds of pensions, which will be calculated based on the All-India Consumer Price Index for Industrial Workers (AICPI-IW), as in the case of current employees.
Lump Sum Payment on Superannuation: In addition to gratuity, employees will receive a lump sum payment at retirement, equal to 1/10th of their monthly emoluments (including pay and Dearness Allowance) for every six months of service completed.
- This lump sum will not affect the assured pension amount.
Working Mechanism of UPS
Two Funds Under UPS: The scheme will have two funds namely individual corpus and pool corpus.
- Individual Corpus contains employee contribution and matching Union government contribution of 10% of basic pay plus dearness allowance (DA).
- Pool Corpus contains an additional central government contribution of 8.5% of basic pay + DA to support the UPS’ assured payouts.
Investment Management: The employees will be able to make investment choices for the individual corpus only, which would be regulated by the Pension Fund Regulatory and Development Authority (PFRDA).
- However, the investment decisions for the pool corpus will be taken solely by the central government.