Central government employees who were dissatisfied with the New Pension System (NPS), introduced in 2004, will now have the option of a Unified Pension Scheme, which combines features of both the NPS and the Old Pension Scheme (OPS). Since the introduction of the NPS, employees have been demanding the restoration of the OPS, as it provided them with an assured pension without requiring any fixed personal contribution during their service. In contrast, under the NPS, employees are required to contribute 10% of their basic pay each month, which is matched by a 14% contribution from the government.
The Unified Pension Scheme (UPS) will be applicable from next year, with a requirement of 25 years of service for an employee to be eligible for a full pension. This means that employees retiring in 2029 or later will be eligible for a full pension, as the UPS is offered as an alternative to the NPS, which was introduced in 2004. Employees retiring before completing 25 years of service will have their pensions calculated on a pro-rata basis. However, the minimum pension has been set at Rs 10,000 for those who have served at least 10 years.
How will be pension calculated under UPS after 8th Pay Commission comes into force?
Based on past trends, the Centre has implemented new pay commission recommendations every 10 years, leading to expectations that the 8th Pay Commission will be introduced in 2026. However, this remains speculative as the government has yet to announce the formation of the commission, which will provide recommendations for implementation after Cabinet approval. The 7th Pay Commission’s term will conclude on December 31, 2025.
If reports are to be believed, the 8th Pay Commission’s pay matrix is likely to be prepared using a fitment factor of 1.92. With this fitment factor, the current minimum salary for Level 1 under the 7th Pay Commission, which is Rs 18,000 with a grade pay of 1800, could be revised to Rs 34,560. The maximum salary for Level 18, the highest pay scale in the central government fixed for the position of cabinet secretary, is currently Rs 2.5 lakh. The pay scale hierarchy consists of 18 levels, with Level 18 being the top tier. Based on a fitment factor of 1.92, the maximum salary in the government sector may be revised to Rs 4.8 lakh under the 8th Pay Commission.
Also read: 8th Pay Commission: When will the next commission be formed? Govt hints at timeline
What will be the minimum and maximum pension under the Unified Pension Scheme?
Under the UPS, the pension will be set at 50% of the average monthly salary of the 12 months preceding superannuation. For example, since full pension eligibility under the UPS is achieved after 25 years of service, the first batch of pensioners entitled to a full pension will retire in 2029, having completed 25 years of service by then. This timeline aligns with the transition from the Old Pension Scheme (OPS) to the New Pension System (NPS) in January 2004, when OPS was discontinued.
If the 8th Pay Commission is implemented in January 2026, as central government employees expect, the minimum salary is projected to be Rs 34,560, while the maximum could reach Rs 4.8 lakh. Employees will also receive five DA hikes on their salaries before January 2029, when the first batch of employees recruited in 2004 will retire. Assuming a 4% increase in each revision, the DA would amount to 20% of the basic salary by then.
For a salary of Rs 34,560, a 20% DA would add Rs 6,912, making the pension Rs 20,736, as it is calculated as 50% of the basic salary plus DA, for those in Level 1. Similarly, for a salary of Rs 4.8 lakh, with a DA of Rs 96,000, the pension for those in Level 18 would be Rs 2,88,000, which is 50% of their last drawn salary in January 2029.