Confused by the newly introduced Unified Pension Scheme? Here’s all you need to know about how it will work

The Unified Pension Scheme (UPS) is a newly introduced pension system approved by the Indian government aimed at providing guaranteed pensions, family pensions, and a minimum assured pension for central government employees. It is set to take effect from April 1, 2025.

Who is eligible for the UPS?

The scheme is applicable to central government employees who have completed a minimum of 10 years of service. It also reportedly offers a choice to current employees between the existing National Pension System (NPS) and the new UPS. This includes employees who are retired or retiring on or before 31 March 2025 with arrears.

Once selected, the choice will reportedly be final for both current and future employees.

What are the key benefits of the UPS?

• Guaranteed Pension: Employees will receive a pension equivalent to 50% of their average basic salary from the last 12 months prior to retirement, provided they have completed at least 25 years of service. This is proportionately reduced for those with less than 25 years but more than 10 years of service.
• Family Pension: In the event of the pensioner's death, the family is entitled to receive 60% of the pension amount that was being disbursed at the time of the pensioner's passing.
• Minimum Pension: A guaranteed minimum monthly pension of Rs 10,000 is assured after retirement for those with at least 10 years of service.

How will the pension be adjusted for inflation?

The UPS includes a provision for inflation adjustment through Dearness Relief (DR), which is linked to the All India Consumer Price Index for Industrial Workers (AICPI-IW). This ensures that the pension, family pension, and minimum pension keep pace with inflation.
The government's contribution to the pension fund has been increased from 14% to 18.5% of the employee's salary. This is part of the government's commitment to ensuring the financial security of its employees in retirement.

In addition to the regular pension, employees will receive a lump-sum payment at the time of superannuation. This will be 1/10th of the monthly salary (including basic pay and Dearness Allowance) for every six months of completed service.

How does the UPS compare with the NPS?

The UPS offers a guaranteed pension and family pension, whereas the NPS is a contributory scheme where the final pension amount depends on the accumulated corpus and market performance. Employees under the UPS have the security of a fixed pension, while the NPS offers potentially higher returns but with associated risks.

The central government has made the framework of the UPS available to state governments. If adopted, it could benefit around 90 lakh state government employees currently under the NPS.

What is the broader impact of the UPS?

As per current estimates, the implementation of the UPS is expected to cost the government an additional Rs 6,250 crore in its first year. The costs will be reassessed every three years to ensure sustainability.

The introduction of the new pension scheme is potentially a significant step toward ensuring the financial security and dignity of government employees in their retirement years. It remains to be seen whether it will effectively address the growing demands for a more secure pension system and improve employee welfare.