Unified Pension Scheme (UPS) is set to provide assured pension to 23 lakh eligible central government employees, applicable April 1, 2025, onwards. The move, however, will put an additional burden of ₹6,250 crore on the exchequer per year.

The Cabinet approved the introduction of the Unified Pension Scheme (UPS) over the weekend to improve the National Pension System (NPS) for central government employees.

A look at key features of Unified Pension Scheme

-Employees who have adequate service will get an assured pension of at least 50% of the last 12 months’ average salary as pension

-Minimum pension of Rs 10,000 per month will be given to those with at least 10 years’ service.

-Family pension to spouse will be given at 60% of the pension.

-Dearness relief will be given on the assured pension, minimum pension and family pension.

-In addition, a lumpsum will be provided at the time of retirement.

As the government explains that there will be no increase in the contribution from employees but the Central Government will increase its contribution. Those who have already retired under NPS will also be eligible for this benefit. Arrears will be paid to such past retirees after adjusting the withdrawals already made by them.

Also Read: Unified Pension Scheme (UPS) vs Old Pension Scheme (OPS) – Main Differences

The employee contribution shall remain unaltered at 10% of (basic pay + DA). The Government contribution will increase from the present 14% to 18.5%.

The pension corpus will be divided into two funds:

-an individual pension fund to which the employee contribution (10% of basic pay and DA) and matching government contribution will be credited.

-a separate pool corpus with additional government contribution alone (8.5% of basic and DA of all employees).

How does it work?

The employee can exercise an investment choice for the individual pension corpus alone. The employee can withdraw up to 60% of the individual pension corpus with proportionate reduction in assured pension.

The assured pension will be based on the ‘default mode’ of investment pattern notified by PFRDA and considering full annuitization of individual pension corpus. In case the benchmark annuity is lower than the assured annuity, the shortfall will be made good.

Also Read: Explained — The Unified Pension Scheme (UPS)

In case the individual employee corpus generates higher than assured annuity (based on investment choice exercised by the employee), the employee will be entitled to such higher annuity. In case however, the annuity generated is lower than the default mode, the top up provided by the government through UPS will be limited to the benchmark annuity.

Full assured pension will be available for a minimum qualifying service of 25 years. For lesser service, starting from at least 10 years, pro rata assured pension will be given.

Employees would have a choice to opt for UPS. An employee could choose to continue with the NPS, if s/he so desires.

The UPS will be given effect from 01.04.2025. The necessary administrative/ legal support framework will be put in place.

Also Read | Explained: What is the Unified Pension Scheme? Eligibility, benefits, and other details