The Centre last year announced the Unified Pension Scheme (UPS), assuring a guaranteed pension for central government employees covered under the National Pension System (NPS). It, however, clarified that the NPS will remain available for those who do not want to switch to the UPS.

Amidst continuous demands from various labour organisations and other stakeholders to bring back the Old Pension Scheme, the Centre tried to give employees a middle ground combining some of the features of both NPS and OPS options. While NPS comes with a benefit of high pension growth potential due to its investment structure divided between primarily equity and debt, OPS gives employees an assurance of stable pension post retirement.

Despite the PFRDA recently coming out with a detailed draft explaining all the guidelines, terms and conditions regarding the new scheme, queries are still being raised by many with regard to regulations.

A parliamentarian recently posed queries to the government asking if the UPI is being brought in place of the existing National Pension Scheme and whether it is true that a committee has been constituted with representatives from government and employees to thrash out contentious issues.

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The member also enquired about the report and the recommendations made by the committee and status of implementation of the same.

Answering the queries, Minister of State for Finance Pankaj Chaudhary said a committee was set up under the chairmanship of Finance Secretary for suggesting measure to modify the National Pension System (NPS) with a view to improve the pensionary benefits of government employees keeping in view the fiscal implications and impact on overall budgetary space.

The committee had extensive discussions with the major stakeholders including Staff Side of the National Council (JCM) and State Government’s, the minister said. “Based on the recommendations of the committee, the Union Cabinet approved the Unified Pension Scheme (UPS) on 24.08.2024. The UPS has been notified on 24.01.2025 for implementation from 01.04.2025.

Key features of the Unified Pension Scheme (UPS)

The UPS aims to provide better financial security to government employees after retirement. Some of its main features include:

Guaranteed pension:

Under the UPS, pensioners will receive 50% of their average basic pay (from the last 12 months before retirement) as a pension, provided they have completed at least 25 years of service. Those with a shorter service period (minimum 10 years) will receive a proportionate pension.

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Family pension:

In case of the employee’s death, the surviving spouse will receive 60% of the pension amount that the employee was receiving before death.

Minimum pension guarantee:

The UPS guarantees a minimum pension of Rs 10,000 to those who retire after serving at least 10 years.

Inflation protection:

The pension amount will be adjusted for inflation, just like Dearness Relief (DR) for serving employees, based on the All India Consumer Price Index for Industrial Workers (AICPIN-IW).

Lump sum payment at retirement:

Upon retirement, employees will receive a one-time lump sum in addition to their gratuity. This amount will be 1/10th of their last drawn monthly salary (Basic Pay + DA) for every six months of completed service. This benefit will not impact the assured pension amount.

When will UPS be implemented?

The UPS will be implemented from April 1, 2025. The new scheme, due to a guaranteed pension feature, is seen as a pension product that will provide greater financial security to government employees compared to the NPS. It is expected that the government will issue further guidelines on the transition from NPS to UPS.