Given the tepid response to the Unified Pension Scheme (UPS), which offers guaranteed pension, the government has extended the deadline for exercising the option for its staff by three months to September-end.
Th UPS option was made available to the government staff at the start of the current financial year, with the June 30 deadline for adoption
“In view of the representations received from various stakeholders requesting an extension of the cut-off date, the Government of India has decided to extend the cut-off date for exercising the option for UPS by three months i.e., up to 30th September 2025 for eligible existing employees, past retirees, and the legally wedded spouses of deceased past retirees,” the government said in a statement.
Teams of officials from the Pension Fund Regulatory and Development Authority and the finance ministry are spearheading a campaign to educate the employees and civil accounts officers about the benefits of UPS, which guarantees a pension at 50% of the last 12 months’ average pay.
Given the poor response from the government staff, the awareness campaign gathered steam. Currently, around 2.7 million central government employees are enrolled under the market-linked National Pension System (NPS).
The central government staff are weighing the cost-benefit between NPS and UPS as once the choice is exercised, it is irreversible.
Many are possibly still not fully aware or understanding the differences, and so they stick to what they have under NPS, analysts said. UPS gives inflation-linked pension whereas NPS annuities don’t offer that.
The UPS will provide assured pension of 50% of average basic pay of last 12 months of service upon superannuation for all employees completing minimum 25 years of service, with value of such deferred compensation fully indexed to inflation.
According to the extant NPS norms, a maximum of 60% of the accumulated NPS corpus from contributions during a person’s working years is allowed to be withdrawn tax-free at the time of retirement. The subscriber has to invest a minimum of 40% of the corpus in annuities for a regular pension.
In the current NPS architecture, a subscriber may purchase units with the return of purchase price (capital), in which case she may get lower returns. In UPS, however, there aren’t any such options. Once the death of the dependent, annuity will cease, and no further payment or capital return is required as it is a joint life annuity without return of purchase price.
Under UPS, the employee contribution shall remain unchanged at 10% (of basic pay + DA). The government’s contribution will increase from the present 14% (under the market-linked national pension system) to 18.5%.
If a government subscriber withdraws up to 60% of the corpus in a lump sum after superannuation from the individual account (built from 20% of basic pay +DA) under UPS, there will be a proportionate reduction in the guaranteed pension. In the case of NPS, if the withdrawal is 60%, the balance 40% corpus could be bigger, given that the corpus is built from a monthly contribution of 24% (Centre 14% + employee 10%) compared to a 20% corpus in the individual UPS account of the subscriber.