Image Source : PEXELS REPRESENTATIVE IMAGE
The Central Government has introduced the Unified Pension Scheme (UPS) as an alternative to the National Pension System (NPS). The official announcement for UPS was made on January 24, 2025, and it will come into effect from April 1, 2025. The scheme is exclusively for government employees who are already registered under NPS. These employees will have the option to choose between NPS and UPS, providing them with more flexibility in planning their post-retirement financial security.
Why was UPS introduced?
The demand for the Old Pension Scheme (OPS) had been growing, as OPS provided retired employees 50 per cent of their last drawn salary as pension. To address this, the government introduced UPS, ensuring a fixed pension amount for central government employees.
What is the Unified Pension Scheme (UPS)?
Under UPS, central government employees will receive a fixed pension equivalent to 50 per cent of their last 12 months’ average basic salary. However, to be eligible, an employee must have completed at least 25 years of service.
In case of an employee’s death, their family will receive 60 per cent of the pension amount that the employee would have been entitled to. Additionally, the scheme ensures a minimum guaranteed pension of Rs 10,000 per month for employees who have served for at least 10 years.
Pension to increase with inflation
The Unified Pension Scheme is linked to inflation rates. This means that pensions will be revised periodically based on the All India Consumer Price Index for Industrial Workers (AICPI-W). The pension amount will increase in the form of Dearness Allowance (DA).
Additionally, retired employees will receive a lump sum amount at the time of retirement. Approximately 23 lakh government employees are expected to benefit from this scheme.
Who is eligible for UPS?
The government officially notified UPS on January 25, 2025, stating that it will apply to central government employees currently covered under NPS. Employees opting for UPS will not be eligible for any additional financial benefits or policy changes.
Increased government contribution under UPS
Union Minister Ashwini Vaishnaw, while announcing the scheme on August 24, 2024, shared key details regarding government contributions.
Under the current NPS, employees contribute 10 per cent of their basic salary, while the government contributes 14 per cent. However, under the new UPS system, the government’s contribution will increase to 18.5 per cent of the employee’s basic salary from April 1, 2025.
This increase in government funding is estimated to add an extra burden of Rs 6,250 crore in the first year on the central exchequer.
The introduction of UPS is expected to provide financial security to government employees, ensuring stable post-retirement income while addressing demands for a pension system similar to the old OPS model.
