What is Unified Pension Scheme introduced for central government employees
What's the story
The Finance Ministry has announced a new pension scheme, the Unified Pension Scheme (UPS), which will come into effect from April 1, 2025.
Under this program, central government employees under the National Pension System (NPS) will be guaranteed a pension of half of their average basic salary drawn in the last year before retirement.
The UPS will serve as an alternative to the existing NPS and will only be available to those who choose it.
Exclusions
UPS not applicable in certain scenarios
Notably, the UPS won't apply in cases of termination of employees, dismissal from service, or resignation.
The full assured payout rate is fixed at 50% of the 12-month average basic salary immediately prior to retirement.
This comes with a minimum qualifying service of 25 years, unlike a market returns-linked payout under the NPS.
Decision
UPS vs NPS: A choice for 23L government employees
The introduction of the UPS will give a choice to some 23 lakh government employees to opt between the UPS and NPS, which was introduced on January 1, 2004.
For those who don't have the requisite service period, a proportionate payout will be given.
A minimum guaranteed monthly payout of ₹10,000 is promised if retirement happens after 10 or more years of qualifying service.
Provisions
Provisions for voluntary retirement and family payout
In cases of voluntary retirement after minimum 25 years of service, the assured payout will start from the date on which the employee would have retired had he continued in service.
If a UPS holder dies post-retirement, his legally wedded spouse is entitled to family payout at 60% of the admissible amount to the holder immediately before his demise.
Details
Dearness Relief and UPS operational details
Dearness Relief will be applicable on the assured payout and family payout, calculated in the same way as Dearness Allowance for serving employees.
The Pension Fund Regulatory and Development Authority may issue regulations for implementing the UPS.
Upon retirement, a worker's qualifying service under the UPS option will be determined by their office head.
Contribution
UPS to raise government's contribution to 18.5%
The UPS, applicable from April 1, will raise the government's contribution from 14% to 18.5%.
Unlike the old pension scheme (OPS), UPS is contributory in nature, where employees will have to contribute 10% of their basic salary and dearness allowance, while the employer's contribution (the Indian government) will be increased to 18.5%.
The final payout will depend on market returns on that corpus, mostly invested in government debt.