Centre Notifies New Unified Pension Scheme As An Option To NPS For Govt Employees

Five months after the Centre announced a new Unified Pension Scheme (UPS) with assured benefits for government employees, the Finance Ministry  notified the scheme as an option for workers covered by the National Pension System (NPS) to be effective from April 1, 2025.
The NPS, originally known as the New Pension Scheme, did not offer an assured pension to government employees who joined service on, or after January 1, 2004, and had replaced an older arrangement that guaranteed pensions for government employees equivalent to 50% of their last drawn salary that were considered fiscally unsustainable.
The UPS, approved by the Union Cabinet on August 24 last year, restores the assurance of 50% of salary as pension for Union government employees, with a periodic dearness relief hike in line with inflation trends.
It also promises a family pension equivalent to 60% of a government worker’s pension on their demise, and a lumpsum superannuation payout in addition to gratuity benefits at the time of retirement. Besides, a minimum pension of ₹10,000 a month has been promised for those who complete at least 10 years of Union government service.
As per the notification, the UPS shall be applicable to Union government employees already covered under the NPS who “choose” the UPS option. Those who do not opt for the UPS features, will remain covered by the NPS but their pension incomes will be linked to the nest egg they build up over their working years, with no assurances of any kind.
For those exercising the UPS option, their retirement corpus will consist of two funds — an individual corpus with employee contribution and matching Union government contribution of 10% of basic pay plus dearness allowance, made through their time in service, and an additional pool corpus with additional Union government contribution to support the UPS’ assured payouts.
At retirement, employees will have to authorise the transfer of their individual corpus to the pool corpus, and if their own corpus is deemed insufficient to meet the assured pension amount, the additional funding pool will be tapped to meet their monthly retirement income promise. For this pool corpus, the Centre will provide an additional contribution of an “estimated 8.5%” of basic pay and dearness allowance of all employees who choose the UPS, on an aggregate basis.
The Finance Ministry has stressed “for the sake of clarity” that any employee who exercises the UPS option under the NPS, shall not be entitled for and cannot claim, any other policy concession, policy change, financial benefit, any parity with subsequent retirees, etc. later, including post-retirement.
The UPS was recommended as an alternative scheme to address concerns of government employees about the NPS, by a high-level panel led by former Finance Secretary and present Cabinet Secretary T.V. Somanathan.
On the Centre’s promise to provide the UPS option to NPS members who may have already retired before April 1, 2025, the notification stated that the Pension Fund Regulatory and Development Authority (PFRDA) will work out a system for them. The PFRDA will “determine the next mechanism for making available the top-up amounts for such retirees who opt for the UPS” relative to the payouts they receive under the NPS.