Government Notifies Unified Pension Scheme. Guaranteed pension offered

for Central Government Employees

New Delhi: In a significant move aimed at addressing long-standing concerns of government employees, the Union Finance Ministry has officially notified the operationalization of the Unified Pension Scheme (UPS). This new scheme will be an option available under the existing National Pension System (NPS) for all Central Government employees, effective from April 1, 2025.

The UPS marks a departure from the market-linked nature of the current NPS, offering a much-awaited guarantee of retirement benefits to government servants. This decision comes after years of agitation and demands from employee unions for a more secure and predictable pension system.

Key Features of the UPS:

• Guaranteed Pension: The cornerstone of the UPS is a guaranteed pension for employees who complete 25 years of service. This pension will be calculated as 50% of their average basic pay during the 12 months preceding their retirement.
• Proportionate Pension: For employees with service ranging from 10 to 25 years, the pension will be calculated proportionately based on their years of service.
• Family Pension: In the unfortunate event of an employee's demise during service, a family pension of 60% of their last drawn salary will be provided to their dependents.
• Minimum Pension Guarantee: To ensure a basic level of financial security, the UPS guarantees a minimum monthly pension of ₹10,000 for all employees with at least 10 years of service.
• Inflation Adjustment: Recognizing the impact of inflation, the pension will be indexed to the Consumer Price Index for Industrial Workers (CPI-IW), ensuring that its value remains relevant over time.

Eligibility and Implementation:

• All Central Government employees who joined service after January 1, 2004, and are currently contributing to the NPS, will be eligible to opt for the UPS.
• Employees who joined the service before 2004 will continue to be governed by the existing Old Pension Scheme (OPS).
• The Pension Fund Regulatory and Development Authority (PFRDA) will be responsible for issuing detailed regulations for the implementation and administration of the UPS.

Background:

The decision to introduce the UPS follows years of deliberation and extensive discussions within the government. A high-level committee, chaired by the then-Finance Secretary T.V. Somanathan, was tasked with reviewing the existing pension system and exploring alternative models. The committee's recommendations, along with persistent pressure from employee unions, ultimately led to the government's approval of the UPS.

Significance:

The UPS is a significant policy shift that aims to address the concerns of government employees regarding the volatility of market-linked returns under the NPS. By providing a guaranteed pension component, the government aims to enhance the financial security and retirement planning of its employees.

8th Central Pay Commission:

This announcement comes on the heels of the government's approval of the 8th Central Pay Commission on January 16, 2025. The 8th Pay Commission is expected to be implemented from January 1, 2026, and will comprehensively review and revise salaries, allowances, and pensions for all Central Government employees.

This includes revisions to the basic pay, Dearness Allowance (DA), House Rent Allowance (HRA), and other allowances, as well as potential enhancements to pension benefits.

Key points of UPS

• From April 1st, 2025, Central Government employees can choose a new pension plan called the Unified Pension Scheme (UPS).   
• This plan will give them a guaranteed pension after they retire.   
• The UPS is an option within the National Pension System (NPS).   
• The government approved this new plan to address concerns of employees who wanted a guaranteed pension.   
• Under the UPS, employees will get a pension of 50% of their average salary in the last year of service, if they work for at least 25 years.
• Employees who work less than 25 years but more than 10 years will get a proportionate pension.   
• There will also be a pension for the family of an employee who dies while in service.
• All employees who retired after 2004 can choose to join the UPS.
• The government formed a committee to review the NPS and find a solution that balances employee needs and government finances.
• The previous pension system (OPS) was expensive for the government.   
• The new UPS aims to provide a balance between guaranteed benefits and responsible government spending.