The Indian government has announced a new Unified Pension Scheme (UPS) for government employees as an alternative to the National Pension System (NPS). The Finance Ministry notified that the scheme will be available starting April 1, 2025.
The NPS, introduced on January 1, 2004, replaced the older pension system that guaranteed government employees a pension equal to 50% of their last salary. Unlike the older system, the NPS does not assure a fixed pension, which raised concerns among employees.
The new UPS, approved by the Union Cabinet on August 24 last year, restores the assurance of 50% of the last drawn salary as a pension for Union government employees. Additionally, pensions will increase over time to account for inflation. The scheme also offers other benefits, such as:
- A family pension equal to 60% of the employee’s pension in case of their death.
- A lump sum payout at retirement along with gratuity.
- A minimum monthly pension of ₹10,000 for employees with at least 10 years of government service.
How the UPS Works
The UPS will be optional for employees currently under the NPS. Those who do not choose the UPS will stay with the NPS, where their pension depends on the savings they accumulate during their career, with no guaranteed amount.
For employees opting for the UPS, their retirement savings will include two parts:
- Individual Corpus: Contributions made by the employee and an equal 10% contribution by the government based on their basic salary and dearness allowance.
- Additional Pool Corpus: An extra fund created with additional contributions from the government (estimated at 8.5% of the basic salary and dearness allowance) to ensure the promised pension amount.
At retirement, employees will transfer their individual corpus to the pool corpus. If their savings fall short of providing the assured pension, the pool corpus will cover the gap.
Important Rules
Employees choosing the UPS will not be eligible for other financial benefits, policy changes, or additional concessions later, including after retirement. This clarification has been emphasized by the Finance Ministry.
Benefits for Retired Employees
The government has also promised to extend the UPS option to employees who retired under the NPS before April 1, 2025. The Pension Fund Regulatory and Development Authority (PFRDA) will create a system to provide the additional pension benefits to these retirees.
The UPS was recommended by a high-level committee led by T.V. Somanathan, the current Cabinet Secretary, to address employee concerns about the lack of guaranteed pensions under the NPS.
