On January 24, 2025, the Ministry of Finance (Department of Financial Services) announced the introduction of a new Unified Pension Scheme (UPS) for Central Government employees covered under the National Pension System (NPS).
This change comes as a partial modification of previous pension-related notifications and aims to enhance retirement benefits for government employees. The scheme is set to come into effect on April 1, 2025. Below are the key takeaways from the notification:
What is the Unified Pension Scheme?
The Unified Pension Scheme offers Central Government employees a choice to either join this new option or continue with the existing National Pension System (NPS). The new scheme includes assured payouts for employees who meet certain eligibility criteria, as well as other significant changes that provide more security for employees post-retirement.
Eligibility Criteria for the Unified Pension Scheme
To qualify for the assured payout under the UPS, employees must meet specific conditions:
- Superannuation (retirement) after 10 years of qualifying service.
- Retirement under FR 56(j) (non-disciplinary).
- Voluntary retirement after a minimum of 25 years of service, with payouts starting from the date the employee would have superannuated.
However, employees who are removed or dismissed or resign from service are not eligible for the UPS benefits.
Key Features of the Unified Pension Scheme
- Assured Payout: Employees who opt for the UPS will receive a guaranteed payout:
- 50% of average basic pay (over the last 12 months) after 25 years of qualifying service.
- For those with less than 25 years of service, the payout will be proportionate.
- Minimum payout of ₹10,000/month for employees with 10 years or more of service at the time of retirement.
- Family Payout: If the retiree passes away, the spouse will receive 60% of the assured payout.
- Dearness Relief: The assured and family payouts will be subject to Dearness Relief, which will be calculated similar to how Dearness Allowance is given to serving employees.
- Lump-Sum Payment: Upon superannuation, employees will receive a lump sum of 10% of their monthly emoluments (basic pay + DA) for every completed six months of service. This lump sum will not affect the assured monthly payout.
- Contribution Structure:
- Employees will contribute 10% of their basic pay + Dearness Allowance to their individual pension corpus, with the Government matching this contribution.
- Additionally, the Central Government will contribute 8.5% of the pay to a pool corpus, which supports the assured payouts.
- Investment Choices: Employees can choose how to invest the funds in their individual corpus, and the Pension Fund Regulatory and Development Authority (PFRDA) will regulate these choices. If no choice is made, a default investment pattern will apply.
- Transfers: When an employee opts into the UPS, the accumulated amount in their NPS corpus will be transferred into their individual corpus under the Unified Pension Scheme.
For Past Retirees
The scheme will also apply to past retirees of the NPS who retired before the UPS operationalizes. These employees will be eligible for arrears along with interest and will also receive a monthly top-up to align with the new scheme’s benefits.
Disciplinary Action Clause
Employees under disciplinary proceedings at the time of superannuation will be excluded from the UPS benefits, with separate provisions to be notified later.
Final Decision
Once an employee opts for the UPS, the decision is final, and they cannot switch back to the traditional NPS.
What Does This Mean for Central Government Employees?
The Unified Pension Scheme is a significant step towards providing more stability and security for employees after retirement. By offering assured payouts and additional contributions from the government, the scheme aims to ensure that employees are financially secure post-retirement.
Employees should review the details carefully, as opting into the scheme will be a one-time, irrevocable decision. The scheme provides both flexibility and financial assurance for government workers who meet the eligibility requirements.
