The Union Cabinet, led by Prime Minister Narendra Modi, has approved the Unified Pension Scheme (UPS) for central government employees. The scheme, set to come into effect on April 1, 2025, will benefit 23 lakh central government employees. PM Modi stated that the UPS will ensure “dignity and financial security” for employees and expressed his pride in their contribution to the country’s development via a post on X.
What is the Unified Pension Scheme (UPS)?
The Central Government has introduced the Unified Pension Scheme (UPS) to provide government employees with a stable pension based on their length of service and their most recent basic salary. According to media reports, central government employees will be able to choose between the Unified Pension Scheme (UPS) and the National Pension Scheme (NPS). Additionally, current NPS subscribers within the central government will have the option to switch to UPS. State governments will also have the option to implement the Unified Pension Scheme in the future
A Times of India report mentions that cabinet secretary-designate T V Somanathan said that an actuarial calculation would be conducted every three years to prevent the liability from being unfunded, as was the case with the Old Pension Scheme (OPS), where the government bore the entire liability without any employee contribution. The Times of India also quoted Ashwini Vaishnaw, Minister of Information and Broadcasting, who mentioned that the UPS’s “five pillars” will be implemented starting in April next year. He also added that a minimum pension of Rs 10,000 will be provided to employees with at least 10 years of service, and that family pensions will amount to 60% of the deceased employee’s pension. A one-time retirement payout equivalent to 10% of the salary and dearness allowance (DA) for every six months of service will also be provided. The minister clarified that after 30 years of service, around six months’ worth of pay will be given as a lump sum upon retirement, which will be separate from the gratuity.
Let’s take a look at five key features of the Unified Pension Scheme as outlined in a Press Information Bureau release dated August 25, 2024.
UPS: 5 Important Things to Know
- Assured Pension: Employees with at least 25 years of service will receive 50% of the average basic salary drawn during the 12 months before retirement. For shorter service periods, the pension will be proportional.
- Assured Family Pension: The spouse of a deceased employee will receive 60% of the pension amount.
- Assured Minimum Pension: After 10 years of service, a minimum pension of Rs 10,000 per month will be provided.
- Inflation Indexing: The assured pension, family pension, and minimum pension will be adjusted for inflation. Dearness Relief will follow the All India Consumer Price Index for Industrial Workers (AICPI-IW), just like for current employees.
- Lump Sum Payment at Retirement: In addition to gratuity, 1/10th of monthly emoluments (pay + DA) at the time of retirement will be paid for every completed six months of service. This payment will not reduce the pension amount.
What is NPS?
The National Pension System (NPS) is a defined contribution-based pension scheme introduced by the Central Government on January 1, 2004, replacing the old Defined Benefit Pension system. In the NPS, government employees contribute a portion of their monthly salary towards the pension, with the employer matching the contribution. These funds are then invested in designated investment schemes managed by Pension Fund Managers.