Unified Pension Scheme: The Finance Ministry issued a notification on January 24 explaining features and details regarding implementing the Unified Pension Scheme (UPS) from April 1, 2025. UPS will be available as an option for employees covered under the National Pension System (NPS).
Ever since the notification came out, central government employees have been trying to fully comprehend some of the provisions under the scheme. The provisions like assured pension start timeline and minimum number of service years for voluntary retirement under UPS will need more clarity. Employees are hoping that the Pension Fund Regulatory and Development Authority (PFRDA) will come out with clearer guidelines before the UPS gets implemented in the next financial year.
Employee unions still seeking OPS restoration
Employee union leaders are still not satisfied with the government’s decision to offer employees the choice between NPS and UPS. They are adamant about their demand for bringing back the OPS.
Employees are of the view that instead of complicating matters with NPS and UPS, the government should directly restore OPS benefits.
What’s in the UPS notification?
Employees see this notification as complex and confusing, saying it is difficult for the average employee to comprehend.
How much pension will central government employees receive?
Let’s understand from this example: if an employee’s average basic salary for the first 12 months of retirement is Rs 50,000, and the employee has worked for 25 years with a monthly contribution of 10%, the monthly pension would be Rs 25,000 + DR. If the employee has worked for 15 years, the pension would be Rs 15,000 + DR, calculated at a 30% rate. For employees with only 10 years of service, the prescribed minimum pension amount under the UPS scheme would be Rs 10,000 + DR.
The calculation shows that the pension amount will be double the years of service. For example, an employee with a basic salary of Rs 40,000 and 20 years of service would receive a 40% pension, which equals Rs 16,000 + DR.
Loss on taking VRS
If an employee takes a Voluntary Retirement Scheme (VRS) before completing 25 years of service, they will not receive pension benefits from the date of VRS. Instead, the pension will only begin once the employee reaches the age of 60.
According to the notification, “…in cases of voluntary retirement after a minimum of 25 years of qualifying service, the assured payout will commence from the date on which the employee would have superannuated if he had continued in service.”
In simpler terms, if an employee chooses to retire early (after 25 years of service), he won’t immediately start receiving the assured pension payout. Instead, the payouts will only commence when they reach the age he would have retired at had he stayed in service.
Family pension rule under UPS
Similarly, in case of death, the family will not receive the pension from the date of death. The pension will be provided only after the employee would have turned 60, had they lived, as the notification suggests.
Minimum service requirement for VRS
A key question arising with this new scheme is whether the minimum qualifying service required for voluntary retirement from central government service is being increased to 25 years, up from the current 20 years.
Also read: Central govt employees attention! Unified Pension Scheme notified – Key details you must know
Timeline and key UPS features
On August 24, 2024, the Union Cabinet approved the UPS for about 23 lakh central government employees. The policy promises a monthly pension equal to 50% of the average basic pay drawn by a central government employee during the 12 months before retirement, provided 25 years of service are completed.
The Centre set up a high-level committee to look into employee demands and rework the pension system in April 2023, led by T V Somanathan, the then-finance secretary. This decision came after unions and other employee bodies kept putting pressure on the government to scrap the NPS and restore the old pension plan.