The Union Finance Ministry has officially notified the operationalization of the Unified Pension Scheme (UPS), which will be available to central government employees under the National Pension System (NPS) starting from April 1, 2025. The new scheme aims to provide guaranteed retirement benefits to employees, addressing long-standing concerns about pension security.
Central government employees covered by the NPS who choose to opt for this new option will apply for the UPS. According to the notification issued on January 24, 2025, the Pension Fund Regulatory and Development Authority (PFRDA) may soon issue additional regulations to fully implement the scheme.
The Cabinet, led by Prime Minister Narendra Modi, approved the new pension policy in August 2024, which will impact over 2.3 million central government employees. This move responds to demands from federal staff unions who sought guaranteed retirement benefits. Under the UPS, employees who complete 25 years of service will receive a pension amounting to 50% of their average basic pay over the last 12 months before retirement.
In a major departure from the existing system, the UPS will also provide pensions on a proportionate basis for employees who serve between 10 and 25 years. Those retiring with fewer than 10 years of service will not be eligible for the UPS but will have access to the existing NPS.
The new scheme will ensure family or survivor pensions, set at 60% of the deceased employee’s last drawn salary. Additionally, employees with a minimum of 10 years of service will receive a guaranteed monthly pension of ₹10,000.
To keep pace with inflation, the government will index the UPS to the Consumer Price Index for Industrial Workers (CPI-IW), a widely used gauge for calculating dearness relief (a benefit paid to pensioners to compensate for inflation). The scheme will also offer the option to continue under the NPS, providing employees with greater flexibility in their retirement planning.
Notably, the government has allowed employees who have retired since 2004 to opt into the UPS. However, the Old Pension Scheme (OPS), which guarantees a fixed pension of 50% of the last drawn salary after retirement, will continue to cover employees who joined before April 2004.
The NPS, a market-linked system, was introduced in 2004 to address the financial strain caused by the unfunded OPS. NPS contributions are invested in equities, with returns from the market determining the pension amount. While the UPS will ensure a more predictable retirement income, the NPS will continue as an option for employees who prefer the market-linked approach.
A panel led by cabinet secretary-designate TV Somanathan developed the new UPS after a series of consultations, responding to growing dissatisfaction with the NPS. Some opposition-ruled states had already reverted to the OPS, leading to political debates over the fairness and sustainability of the NPS.
Finance Minister Nirmala Sitharaman, in her Union Budget speech in July 2023, confirmed the government’s commitment to finding a balanced solution that protects the interests of both employees and taxpayers, while ensuring fiscal responsibility.
As the implementation date of April 1, 2025, approaches, central government employees can look forward to a more secure pension system that provides more reliable retirement benefits, while maintaining the financial prudence needed to ensure the system’s sustainability.
