Finance Ministry Notifies Unified Pension Scheme (UPS) Assures 50% Pension
The Finance Ministry on Saturday notified the Unified Pension Scheme (UPS), aimed at providing an assured pension of 50 percent of an employee’s average basic pay for the last 12 months before retirement. According to a gazette notification issued by the Finance Ministry, the UPS would be applicable to central government employees who are covered under the National Pension System (NPS) and who choose this option under the National Pension System. The UPS or assured payout would not be available in case of removal or dismissal from service or resignation of the employee, as per the notification published on Saturday.
According to the government’s gazette notification, the UPS will provide a guaranteed pension based on 50 percent of the average basic pay in the 12 months prior to an employee’s superannuation, but only if the employee has a minimum of 25 years of qualifying service. If the service period is shorter, a proportionate payout will be provided.
“With the introduction of UPS, central government employees will now have the option to choose between the NPS and the new scheme, which will give them a more predictable and assured pension,” said a Finance Ministry spokesperson, adding that the effective operational date for UPS will be April 1, 2025, and the new scheme will cover around 23 lakh employees.
For those with less than 25 years of service, the payout will be adjusted proportionately, with a minimum assured amount of Rs 10,000 per month if the employee has completed at least 10 years of qualifying service.
The UPS also includes provisions for family members in case of the employee’s death. “If the employee passes away after superannuation, the spouse will receive 60% of the pension payout that was being provided to the employee,” the spokesperson explained.
In addition to the assured pension, the scheme will offer dearness relief, calculated in the same way as it is for serving employees, based on the All India Consumer Price Index for Industrial Workers.
The central government employees already covered under the NPS, as well as future recruits will be given the option to choose between the UPS and the NPS, without any compulsion. Those opting for UPS will have their contributions under the NPS transferred to the UPS, which will offer a more secure and assured pension payout.
“Unlike the NPS, which is based on market returns and is less predictable, the UPS ensures an assured pension, making it a more attractive option for many employees,” said an official from the Ministry.
The new UPS scheme also comes with an increase in the government’s contribution, which will rise from 14% to 18.5% under the new scheme, providing employees with more financial security.
While the NPS has been criticised for its market-based returns and lower predictability compared to the previous Old Pension Scheme (OPS), which was more generous, the UPS aims to strike a balance by providing both guaranteed payouts and the benefits of a contributory system.
“The UPS is a positive step towards improving the retirement benefits for government employees while also addressing concerns regarding the NPS’s returns,” said a senior government official.
The government had set up a committee under former Finance Secretary TV Somanathan in 2023 to explore improvements to the NPS, leading to the development of the UPS. The new scheme will help address the growing demand for better pension schemes and provide a more secure future for central government employees.
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