New pension rules for railway employees: What is changing and why it matters

According to the Ministry, these regulations could be referred to as the Railway Services (Implementation of the Unified Pension Scheme (UPS) under the National Pension System (NPS) Rules, 2026).

The regulations will take effect on the day they are published in the Official Gazette.

Here are the key points of the notification. 

What is UPS and how does it compare with NPS?

As an option under the National Pension System (NPS) for Central Government employees, the Government of India launched the Unified Pension Scheme (UPS) on April 1st, 2025.

NPS is a market-linked investment scheme, whereas UPS works as a guaranteed pension product, and both have the same employee contribution model of 10% of basic salary + Dearness Allowance (DA). 

However, the government contribution differs, with 14% of basic salary + Dearness Allowance (DA) under NPS and 8.5% of basic salary + Dearness Allowance (DA) under UPS. 

Under NPS, the pension benefit depends on investment performance and the chosen annuity plan; however, under UPS, the pension benefit is calculated based on 50% of average basic pay over the last 12 months for employees with 25+ years of service.

UPS does not permit a lump sum payout at retirement, whereas NPS permits one with 80% of the corpus (tax-free) and 20% annuitized. While UPS permits 60% of the last pension drawn to be provided to the family as the family pension benefit, NPS bases the family pension on the annuity plan selected by the subscriber. 

Who can opt for UPS under the new guidelines?

The Ministry of Railways states that the regulations will apply to railway employees who are substantively appointed to railway services and roles on or after January 1st, 2004, and who choose the UPS as an option under the NPS. However, they will not apply to:

(a) persons in casual and daily rated employment; 

(b) persons paid from contingencies; 

(c) persons employed on contract; 

(d) persons whose terms and conditions of service are regulated by or under the provisions of the Constitution or any other law for the time being in force; and 

(e) persons to whom the Railway Services (Implementation of National Pension System) Rules, 2025 apply and who have not opted for Unified Pension System; and 

(f) persons to whom the Railway Services (Pension) Rules, 2026 apply in accordance with any special or general order issued by the Government.

A Railway employee joining service on or after the 1st April 2025 becomes eligible for subscribing to NPS and shall have the option to directly enroll for being covered under the UPS immediately on joining, and in case such an employee chooses the UPS option under the NPS, he or she is required to submit an application for enrolment to the concerned Head of Office in Form A1 of Schedule I of the regulations within a period of 30 days, from the date of joining the Railway service or within such extended timelines, if any, allowed by the Central Government.

After ten years of qualifying service, eligible railway workers will earn a minimum assured pension of Rs 10,000 under the announced framework. The full assured pension will be available to those who have completed 25 years of service. After 20 years of service, the employees may also choose to voluntarily retire under the regulations.

Under the scheme, railway workers who have completed 25 years of qualifying service will be eligible for the full assured pension. 50% of the average basic pay received in the last 12 months before superannuation will be the full pension. A correspondingly lower assured pension will be given to workers who have completed at least 10 years but less than 25 years of eligible service.

Process of enrollment rules

After receiving the notification, the Head of Office will notify the subscriber of their Permanent Retirement Account Number (PRAN), enter it in the subscriber registration form, and paste a certified copy in the service book within 5 working days. 

The authorities will ensure the Railway Servant is enrolled in the UPS without delay, and the first contribution will be credited to his individual pension account within 20 days of the application submission date or by the end of the month the Railway Servant joined, whichever comes first.

The salary or salaries will be provided to the railway employee after the amount of contribution has been held if the railway employee’s enrolment in the UPS has not been completed by the date of the first month’s or any consecutive month’s salary drawal.

A railway employee who subscribes to UPS must make monthly contributions towards the UPS account equal to 10% of their basic pay + dearness allowance (DA). 10% of the employee’s basic pay and DA will be matched by the railways and added to the individual UPS account. 

“Provided that where, in the final orders passed by the government on conclusion of the inquiry, the period spent under suspension is treated as duty or leave for which leave salary is payable; contributions to the Unified Pension Scheme shall be determined based on the emoluments which the subscriber becomes entitled to for the period of suspension and the difference of the amount of contribution to be deposited and the amount of contribution already deposited during the period of suspension, shall be credited to the individual corpus of the subscriber valued on the net asset value of the default pattern and corresponding units on last working day of the month in which contributions have to be adjusted,” the Ministry said.

“In case of delay in crediting of contribution to the individual corpus of the subscriber beyond the prescribed timeline due to factors not attributable to the subscriber, the amount shall be credited to the individual corpus of the subscriber valued on the net asset value of the default pattern, and corresponding units on last working day of the month in which contribution(s) has to be adjusted,” according to the Ministry.

A subscriber’s individual corpus under the UPS will be invested by the pension fund or funds and in the manner that the Authority may specify.

Switch option

A subscriber covered by these regulations who has chosen to enroll in the UPS will have the opportunity to switch to the NPS at any point during their tenure. In the event of removal, dismissal, or mandatory retirement from service as a penalty, there will be no option to switch to the National Pension System. 

A Central Government contribution of 14% under the NPS, in addition to an additional 4% for the period spent under UPS, is made available to a switching employee.

Benefits in case of superannuation, retirement and death

According to the Pension Fund Regulatory and Development Authority’s (PFRDA) operationalization of the Unified Pension Scheme under the National Pension System Regulations, 2025, a subscriber who is retiring upon reaching the age of superannuation or, if the subscriber’s service has been extended beyond superannuation, upon the expiration of that extended period of service, is entitled to benefits. 

A subscriber can unsubscribe from the service at any point after completing twenty years of regular service by notifying the appointing authority in writing at least three months in advance. Employees who choose VRS, however, will not start receiving the annuity right until after quitting their jobs. According to UPS regulations, the employee’s annuity benefit will start on the day they would have otherwise attained the standard superannuation age.

“A railway servant compulsorily retired from service as a penalty, may be granted, by the authority competent to impose such penalty, benefits at a rate not less than two thirds and not more than full admissible payout to him out of the individual corpus under the Unified Pension Scheme,” said the Ministry.

Every three months, on January 1st, April 1st, July 1st, and October 1st of each year, each Head of Department is required to prepare a list of all subscribers who are scheduled to retire within the next twelve to fifteen months.

The government contribution and returns in the subscriber’s individual corpus under the UPS shall be transferred to the government account if, upon the subscriber’s death, benefits are payable to the family under the Railway Services. 

The remaining amount in the individual corpus shall be paid in lump sum to the subscriber’s legally wedded spouse as of the date of the subscriber’s death; if the subscriber has no legally wedded spouse, the remaining amount in the individual corpus shall be paid to the subscriber’s legal heirs.

Disclaimer: This article is for informational purposes only and should not be construed as investment, financial, tax, or legal advice. Any illustrations, examples, or return projections used in this article are for explanatory purposes only and do not guarantee actual investment outcomes. The views and opinions expressed by experts quoted in this article are their own and should not be considered investment recommendations. Readers should consult a qualified professional before making any financial decisions. 

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