The Centre may further incentivise the guaranteed unified pension scheme (UPS) in a bid to increase acceptability among its 2.7 million-strong staff. The additional benefits may include pension for dependent children, more likely for single parents, and an assurance that tax benefits linked to UPS won’t be denied.
The UPS, launched amid demand from a section of employees and Opposition political parties for risk-free pension payouts for government staff, has seen a surprisingly muted response so far.
Since April 1, when a three-month window for a switchover from the market-linked national pension system to the UPS was opened, just 30,000 or 1% of the NPS subscribers have opted for the guaranteed pension.
New Incentives
“The government will likely extend pension to dependent children to an extent similar to the old pension scheme (which existed before NPS),” a senior official said. It may also extend a couple of pending tax benefits soon to the staff opting for UPS, the official said, without elaborating.
Similarly, the government may clarify that employees quitting service before ten years of service can withdraw their share of the contributions made to the pension corpus. However, no pension would be payable if an employee resigns before ten years of service under UPS.
The 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 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.
The scheme is designed in such a manner that it doesn’t inflict an unmanageable cost to government finances. Additional outgo due to the guarantee element was estimated at only Rs 8,500 crore in FY26, with gradual increases over time, as the pay scale gets revised. However, a general control on new additions to the staff strength is expected to put a lid on expenses.
Demand for parity with OPS
Currently, there is no provision under UPS for a pension for the dependent children. Given the societal changes and rising incidence of single parenting, the staff have sought the inclusion of dependent children for pension.
In the Old Pension Scheme (OPS), on the lines of which UPS has been designed to meet the long pension demand of the staff, dependent children receive a family pension calculated at 30% of the deceased employee’s last drawn basic pay.
The tepid response to UPS has forced the government to extend the deadline for switching to the scheme by three months till September 30, 2025. Sources said the deadline may be extended further to ensure the staff internalise the additional benefits announced recently, as well as the newer ones in the offing.
The government is also examining the staff petition that immediate pension be given for central paramilitary force personnel who retire before 60. Under NPS, central armed police forces (CAPF) could take the voluntary retirement scheme (VRS) after 20 years in service and yet get an immediate pension by investing 80% of their corpus in annuities. In contrast, these staff could take VRS after 25 years in service under UPS, but their pension will start after they turn 60 years
On July 4, the centre extended the income tax benefits available under the NPS to the UPS
These provisions would ensure parity with the existing NPS structure and provide substantial tax relief and incentives to employees opting for the UPS. Under NPS, tax exemption is available for withdrawals upto 25% of the self-contribution during service, which can now be availed under UPS also to meet exigencies.
Those under the old income tax regime can now claim tax deduction up to Rs 50,000 under section 80 CCD(1B) over and above the overall ceiling of Rs 1.5 lakh under Sec 80 CCE. Similarly, those under the old tax regime can claim upto 20% of pay (employer share 10% and employee share 10%) as tax deduction under section 80 CCD subject to overall ceiling of Rs 1.5 lakh under section 80CCE.
However, those under the new tax regime, can claim only the employer (government)’s contribution of 14% of pay tax deduction in UPS, similar to NPS.
Under UPS, the employee contribution is 10% (of basic pay + DA). The government’s contribution has been raised from the present 14% (under the market-linked NPS) to 18.5%.