Unified Pension Scheme (UPS)

  • 27 Jan 2025

Tags:

In News:

The Ministry of Finance has notified the Unified Pension Scheme (UPS) as an option under the National Pension System (NPS) for Central Government employees, effective April 1, 2025. This reform addresses long-standing concerns about the unpredictability of pension returns under the NPS.

Key Highlights:

  • Applicability: Applies to Central Government employees currently under the NPS, including those recruited on or after January 1, 2004, who opt for the UPS.
  • Objective: To provide guaranteed post-retirement financial security, addressing grievances regarding the market-linked returns of the NPS.
  • Regulatory Framework: The scheme will be regulated by the Pension Fund Regulatory and Development Authority (PFRDA), which will issue detailed operational guidelines.

Pension and Benefit Structure

  • Guaranteed Monthly Pension:
    • 50% of the average basic pay drawn in the last 12 months prior to retirement.
    • Requires completion of 25 years of service.
    • Those with 10–25 years of service will receive a proportionate pension.
  • Dearness Relief (DR): Periodic adjustments based on inflation trends to maintain pension value.
  • Family Pension: In case of death, 60% of the employee's pension will be paid to eligible family members.
  • Minimum Pension: Assured ?10,000 per month for those completing at least 10 years of service.
  • Superannuation Benefits: Includes a lump sum payout and gratuity at retirement.

Contribution Mechanism

  • Employee Contribution: 10% of basic pay.
  • Government Contribution: 5% of basic pay (subject to revision based on actuarial evaluations).

Background and Policy Evolution

  • The Union Cabinet approved the UPS on August 24, 2024, benefiting nearly 2.3 million Central Government employees.
  • The move followed demands from staff unions for guaranteed pensions, and political pressure after several states reverted to the Old Pension Scheme (OPS).
  • A high-level committee, led by T.V. Somanathan (then Finance Secretary), was formed in April 2023 to review the NPS framework and design an equitable alternative.