Finance Ministry notifies assured pension scheme, govt employees can choose between UPS and NPS

New Delhi: The Finance Ministry on Saturday notified the Unified Pension Scheme (UPS) which promises an assured pension of 50 per cent of the average basic pay drawn over the last 12 months prior to superannuation.

The UPS would be applicable to Central Government employees who are covered under the National Pension System and who choose this option under the National Pension System, according to a gazette notification issued by the Finance Ministry.

UPS or assured payout would not be available in case of removal or dismissal from service or resignation of the employee, as per the notification published on Saturday.

As per the notification dated January 24, the rate of full assured payout will be 50 per cent of 12 monthly average basic pay, immediately prior to superannuation subject to a minimum qualifying service of 25 years against a market returns linked payout under the NPS.

The notification will give the option to 23 lakh government employees to choose between UPS and NPS, which came into effect on January 1, 2004.

In case of a lesser qualifying service period, the proportionate payout would be admissible, it said, adding a minimum guaranteed payout of Rs 10,000 per month shall be assured in case superannuation is after ten years or more of qualifying service.

The effective date for operationalisation of the Unified Pension Scheme would be April 1, 2025.

In cases of voluntary retirement after a minimum 25 years of qualifying service, assured payout will commence from the date on which the employee would have superannuated, if he had continued in service, it said.

"In case of death of the payout holder after superannuation, family payout at the rate of 60 per cent of the payout admissible to the payout holder, immediately before his demise, will be assured to the legally wedded spouse (spouse legally wedded as on the date of superannuation or on the date of voluntary retirement or retirement under FR 56(j), as may be applicable," it said.

Dearness Relief will be available on the assured payout and family payout, as the case may be, it said, adding, the Dearness Relief will be worked out in the same manner as Dearness Allowance applicable to serving employees.

Dearness Relief based on All India Consumer Price Index for Industrial Workers (AICPI-IW) as in case of service employees.

"The existing Central Government Employees under National Pension System (NPS), on the effective date of operationalisation of the UPS option, as well as the future employees of Central Government can choose to either take the Unified Pension Scheme option under the NPS or continue with the NPS without the Unified Pension Scheme option," it said.

Once an employee covered under NPS, who is in service on the effective date of operationalisation of the UPS option, exercises the UPS option, the outstanding corpus in the employees Permanent Retirement Account Number would be transferred to the employee's individual corpus under the Unified Pension Scheme, it said.

At superannuation or retirement, it said, the qualifying service of the employee under the UPS option, will be determined by the Head of Office, where he or she is employed.

Pension Fund Regulatory and Development Authority may issue regulations for operationalising Unified Pension Scheme.

The UPS, effective from April 1, 2025, will increase the government's contribution from the current 14 per cent to 18.5 per cent.

The Union Cabinet, chaired by Prime Minister Narendra Modi on August 24, 2024, approved the UPS.

Under the old pension scheme (OPS), effective before January 2004, employees got 50 per cent of their last drawn basic pay as pension.

Unlike the old pension scheme, UPS is contributory in nature, wherein employees will be required to contribute 10 per cent of their basic salary and dearness allowance while the employer's contribution (the central government) will be 18.5 per cent.

However, the eventual payout depends on the market returns on that corpus, mostly invested in government debt.

Employees, under the OPS, were not required to make any contribution. They, however, contributed to the General Provident Fund (GPF). The accumulated amount, along with interest, was paid to the employee at the time of retirement.

As the NPS was less attractive than the OPS, several non-BJP-ruled states decided to go back to the old pension scheme, which offered a DA-linked benefit.

This prompted the Centre to constitute a committee in April 2023, under former Finance Secretary and now Cabinet Secretary-designate TV Somanathan to suggest improvement in the NPS architecture.