The Union finance ministry notified operationalisation of the Unified Pension Scheme (UPS) as an option under the National Pension System (NPS) for central government employees from April 1, 2025, which will ensure guaranteed retirement benefits.
“The Unified Pension Scheme shall be applicable to such Central Government employees who are covered under National Pension System and who choose this option under National Pension System,” the ministry’s January 24 notification said.
The Pension Fund Regulatory and Development Authority (PFRDA) may issue regulations for operationalising UPS, it said. “The effective date for operationalisation of the Unified Pension Scheme shall be 1st April, 2025,” it added.
The Union cabinet led by Prime Minister Narendra Modi on August 24, 2024 approved the new pension policy for nearly 2.3 million central government employees, unveiling a framework that assured 50% of basic pay as monthly payout, assuaging federal staff unions that had sought guaranteed retirement benefits.
The government had set up a panel led by cabinet secretary-designate TV Somanathan, the then finance secretary, in April 2023 to rework the current pension system, known as the new pension scheme or NPS. The move followed widespread grievances that also became a political controversy, with some opposition-ruled states switching to the previous fiscally straining old pension scheme (OPS).
The new system, the Unified Pension Scheme or UPS, will offer 50% of the average basic pay drawn by a federal employee over the 12 months prior to retirement provided he or she completes 25 years of service. The UPS will take effect on April 1, 2025.
This fulfils a key demand of the joint consultative machinery, a platform that provides a mechanism to federal staff to resolve any dispute with the central government. Under the UPS, if an employee has served less than 25 years but more than 10 years, he or she will get pension on a proportionate basis.
The UPS will also give out family or survivor-pension benefits, fixed at 60% of the last-drawn salary of a deceased employee. Employees who retire with a minimum of 10 years of service will get an assured ₹10,000 as monthly pension.
The UPS will be indexed to the Consumer Price Index for Industrial Workers (CPI-IW), a price rise gauge compiled by the labour bureau. The CPI-IW will be used to calculate dearness relief, which is a benefit paid to pensioners to account for inflation.
All employees who retired since 2004 will be eligible to opt for the UPS, while the option to continue with the NPS will remain. According to an official, employees joining service before April 2004 will continue under the OPS that offers a fixed pension, which is 50% of their last drawn salary after retirement.
HT had reported on October 18, 2023 that the pension committee had decided to recommend a system which gives an assured monthly payout but ruled out reverting to OPS.
The NPS is a market-linked, fully funded system and was implemented as a major fiscal reform in 2004, as the previous OPS was a fiscally straining arrangement because it was unfunded. Funds under NPS are invested in equities, returns from which then determine the amount of eligible pension. In other words, pension under the NPS depended on market returns.
A fully funded pension scheme is one which has yearly on-budget allocations and capable of meeting current and future financial obligations based on the fund’s returns on investment and compulsory contributions.
Presenting the Union Budget on July 23, Union finance minister Nirmala Sitharaman said: “The Committee to review the NPS has made considerable progress in its work. I am happy that the staff side of the National Council of the Joint Consultative Machinery for Central Government Employees have taken a constructive approach. A solution will be evolved which addresses the relevant issues while maintaining fiscal prudence to protect the common citizens.”