The introduction of the Unified Pension Scheme (UPS) on April 1, 2025, marks a significant step forward in the configuration of pensions for central government employees.
At present, 14% of the pension amount for the employees is contributed by the employer (the government), while in the case of UPS, this will turn to 18.5% contribution, along with the employee contributing 10% of their basic salary and dearness allowance toward the scheme.
What is the Unified Pension Scheme?
The UPS was a scheme approved by the Union Cabinet on August 24, 2024, and was subsequently brought into effect by the notification of the Finance Ministry dated January 25, 2025.
It plans to provide for a far more structured and beneficial kind of pension scheme for central government employees under the National Pension System (NPS). Accordingly, employees will have the option to either continue in the NPS or switch to UPS.
Whom Does It Affect?
The employees covered under the UPS will be those central government employees who are part of the NPS, with the option of choosing this new scheme. About 23 lakh government employees would have the option of either moving to UPS or staying under the NPS. Current central government employees along with those to be recruited in the future will be either allowed to opt for UPS or continue with NPS without any benefits from UPS.
Pension Amount and Eligibility
Under UPS, the employee will receive 50% of the average basic pay for the last 12 months of service as a fully assured pension after retirement. However, this benefit is permitted only to employees who complete at least 25 years of service. The assured pension shall not come into play in cases of resignation, dismissal, or removal from service.
In other scenarios, where the employee has completed less than 25 years of service, the pension amount would be halved. If an employee has completed at least 10 years of qualifying service, a minimum pension of ₹10,000 will surely be granted.
How Are The Benefits Availed?
Employees who take the UPS will get their current NPS funds transferred to their respective individual UPS accounts. In addition, the additional government contribution of 18.5% will be building up the pension amount, whereas the employee will have to contribute 10% of their basic salary and dearness allowance.
Voluntary Retirement Or Death Benefits
Assured pension under UPS will start from the date of retirement if an employee voluntarily retires after completing a minimum of 25 years of qualifying service. The remaining 60% of the approved pension, however, will become payable as a family pension to the legally married spouse upon the death of the employee after retirement.
Dearness Relief on Pension
Dearness relief (DR) shall be payable on the assured pension or family pension under the UPS. The computation of DR shall follow the same parameters as that for dearness allowance payable to serving employees.
The UPS aims to provide a secure and structured pension system for central government employees to ensure greater financial independence in retirement. Employees should assess their options and make a prudent choice concerning their conditions.