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The Union finance ministry has officially notified the operationalization of the Unified Pension Scheme (UPS) for central government employees, which will begin from April 1, 2025. This new pension scheme, an option under the National Pension System (NPS), aims to provide guaranteed retirement benefits to federal employees.
The notification, released on January 24, outlines that the UPS will apply to employees already covered under the NPS, offering them 50% of the average basic pay drawn during the last 12 months prior to retirement. However, employees must have completed at least 25 years of service to qualify for the full pension. If an employee has served between 10 and 25 years, they will receive a proportionate pension.
The implementation of the UPS comes after a recommendation by a government panel led by cabinet secretary-designate TV Somanathan, which was set up in April 2023 to address concerns over the existing pension system, the NPS. The NPS has faced criticism due to its market-linked nature, where pension payouts depend on the returns from invested funds. The UPS aims to offer more stability and predictability in retirement income.
Prime Minister Narendra Modi’s cabinet approved the new pension policy on August 24, 2024, following protests and demands from federal staff unions for guaranteed retirement benefits. The UPS will be applicable to approximately 2.3 million central government employees, addressing their concerns by assuring a fixed 50% of their basic pay as a monthly pension after retirement.
The scheme will also include family or survivor-pension benefits, offering 60% of the deceased employee’s last-drawn salary to their family. Furthermore, employees who retire with a minimum of 10 years of service will receive an assured ₹10,000 monthly pension, ensuring a basic level of support for all eligible retirees. The UPS will be indexed to the Consumer Price Index for Industrial Workers (CPI-IW), which will help calculate dearness relief to account for inflation.
Employees who have retired since 2004 can choose to opt into the UPS, while the option to remain under the NPS will still be available. Those who joined before April 2004 will continue under the Old Pension Scheme (OPS), which provides a fixed pension of 50% of the last-drawn salary.
The introduction of the UPS marks a significant shift in India’s pension system, transitioning from the unfunded OPS system to a more sustainable and fully funded structure under the NPS. However, the UPS promises more stability for employees as it provides a guaranteed pension based on a fixed percentage of the last drawn salary, unlike the NPS, which is influenced by market returns.
Union Finance Minister Nirmala Sitharaman, in her budget presentation on July 23, 2024, highlighted the considerable progress made by the committee reviewing the NPS, indicating that a balanced solution had been reached to address the concerns of government employees while maintaining fiscal prudence to safeguard public finances.
The notification of the Unified Pension Scheme reflects the government’s commitment to ensuring better financial security for central government employees in their retirement years, providing a more predictable and stable pension option moving forward.
Sources By Agencies
