To increase the acceptability of the guaranteed unified pension scheme (UPS) among its 2.7 million-strong staff, the Centre on Monday said it will allow a one-time one-way switch facility from UPS to the market-linked national pensions system (NPS), as the staff are weighing the cost-benefit between the two schemes.
The tepid response to UPS has forced the government to extend the deadline for switching from NPS to the scheme by three months, till September 30, 2025.
It was rolled out from April 1 with an initial deadline of three months. Just around 1% staff had exercised the option. Staff were dithering to exercise the UPS switch option as it was irreversible, and they weren’t sure which scheme would be beneficial for them.
New flexibility for government staff
“This switch facility may be exercised by UPS optees any time not later than one year prior to the date of superannuation or three months prior to the deemed date of retirement in case of voluntary retirement, as applicable,” the department of financial services said in an office memorandum dated August 25.
“Similar provisions will be made for resignation and cases of Rule 56J, with minor modifications as necessary.
“lf switch facility not exercised as per aforesaid timelines, the employee shall continue under UPS by default,” it said.
Once the switch facility is availed, the provisions of the Pension Fund Regulatory and Development Authority (Exit & Withdrawal under NPS) Regulations, 2015 would apply. The concerned employee shall cease to be eligible for assured payouts and UPS benefits.
The government’s differential contribution (4%) at the default investment pattern will be worked out and shall be credited to the individual’s NPS corpus at the time of exit, it said.
UPS vs NPS: weighing the benefits
Under UPS, the employee contribution is 10% (of basic pay + DA). The government’s contribution has been raised from the current 14% (under the market-linked NPS) to 18.5%.
The UPS, launched amid demand from a section of employees and Opposition parties for risk-free pension payouts for government staff, has seen a surprisingly muted response so far.
UPS provides an assured pension of 50% of the last drawn salary (average basic pay of the last 12 months of service) upon superannuation for all employees completing a minimum of 25 years of service, with the value of such deferred compensation fully indexed to inflation.
Staff are eligible for a pension after turning 60. Besides, there will be assured payouts to the spouse of the pensioner after his/her demise at 60% of the last pension drawn. Also, all employees with a minimum of 10 years of service will get an assured pension of Rs 10,000 per month.
In NPS, the pension is based on market returns.
On July 4, the Centre extended the income tax benefits available under NPS to UPS.