Centre Notifies Unified Pension Scheme

The Union Ministry of Finance notified the Unified Pension Scheme (UPS) which promises an assured pension.

Applicable to employees who opt for this scheme under NPS.
Operational from April 1, 2025.
PFRDA (Pension Fund Regulatory and Development Authority) will issue regulations for its implementation.

Salient Features of UPS: Assured Pension

- 50% of average basic pay drawn over the last 12 months before superannuation.
- Minimum qualifying service: 25 years.
- For service periods less than 25 years, pension will be proportionate (minimum 10 years of service required).
Assured Family Pension: 60% of the employee’s pension immediately before their demise.
Minimum Pension: ₹10,000/month on superannuation after a minimum of 10 years of service.
Inflation Indexation: Applies to assured pension, family pension, and minimum pension.
- Dearness Relief will be based on the All India Consumer Price Index for Industrial Workers (AICPI-IW), similar to existing service employees.
Lump Sum Payment: At superannuation, employees will receive a lump sum payment in addition to gratuity.

Inflation Indexation: Adjustment of financial values to account for inflation, ensuring the purchasing power of money remains constant.

Dearness Relief: Allowance to offset the impact of inflation on pensions, linked to AICPI-IW.

- Gratuity: 1/10th of monthly emoluments (basic pay + DA) for every completed six months of service.
Voluntary Retirement: UPS option available after 25 years of qualifying service.
- Assured payout starts from the date the employee would have superannuated if they had continued in service.
Exclusions: No assured payout in cases of removal, dismissal, or resignation.
Contribution Structure:
- Employee Contribution: 10% of (basic pay + DA).
- Government Contribution:
  - Matching contribution: 10% of (basic pay + DA) to the individual corpus.
  - Additional contribution: 8.5% of (basic pay + DA) to the pool corpus (aggregate basis).
- Total Government Contribution: 18.5% (up from 14% under NPS).

Individual Corpus: Comprises employee and matching government contributions. Employees can make investment choices, regulated by PFRDA. A default investment pattern will be defined by PFRDA. Pool Corpus: Comprises additional government contributions. Investment decisions taken solely by the central government.

Provides financial security to government employees post-retirement.
Ensures inflation-adjusted pensions, protecting retirees from rising costs.
Encourages long-term service by linking pension benefits to years of service.
Complements the National Pension System (NPS) by offering an assured pension option.

Market risk: The UPS incorporates market-based returns, which means that your pension could still be affected by market volatility, similar to NPS.
Lower guaranteed pension: While the UPS offers more security than the NPS, it might not match the full guaranteed benefits of the OPS, particularly if market conditions are unfavourable.
Limited flexibility: The hybrid nature of the UPS may limit flexibility compared to the OPS. Adapting to this new system might require a better understanding of both defined benefits and contribution-based pensions.
Political opposition: Implementing the UPS may face political challenges, particularly from those who oppose changes to the existing pension schemes.
Logistical challenges: There will be significant logistical challenges in implementing the UPS due to the large number of people and organisations it covers.
Loss on taking VRS: If an employee takes a Voluntary Retirement Scheme (VRS) before completing 25 years of service, will not receive pension benefits from the date of VRS but once he reaches the age of 60.

	OPS	NPS	UPS
Applicability	Government Employees (Centre and States)	Mandatory for Central Government employees (Except the armed forces) after 2004.	All Central government employees under NPS
Pension Amount	50% of the last drawn salary.	No fixed pension; Depends on market returns.	50% of the average basic pay of service’s last 12 months.
Employee Contribution	No Contribution	10% of salary	10% of salary
Payment of Lumpsum Amount	Commutation of 40% of pension as Lump Sum	60% of NPS corpus can be withdrawn as lump sum	Provided on superannuation
Inflation Protection	Through DA	Not Guaranteed	Inflation indexation

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