The Central Government has set a deadline of 30 September 2025 for its employees to opt for the Unified Pension Scheme (UPS) under the National Pension System (NPS). Launched on 1 April 2025, UPS offers an assured pension alternative to the existing market-linked NPS. Despite the new option, only around 40,000 of nearly 24 lakh eligible employees have chosen UPS by mid-September. This article explains the scheme’s key features, differences with previous pension plans, and challenges in its adoption.
Background and Recent Developments
The UPS was approved by the Cabinet in August 2024 to provide a pension option for central government employees. Before UPS, employees recruited before 1 January 2004 received pensions under the Old Pension Scheme (OPS), which guaranteed fixed payouts. Those joining after that date were covered by the NPS, a defined contribution scheme linked to market performance. UPS is optional and aims to blend assured benefits with NPS flexibility.
Key Features of the Unified Pension Scheme
UPS offers a guaranteed pension of 50% of the average basic pay drawn in the last 12 months before retirement. To qualify, employees must serve at least 25 years. After the pensioner’s death, the spouse receives 60% of the pension amount. The scheme also guarantees a minimum monthly pension of Rs 10,000 after 10 years of service. A lump sum payment is available on retirement, calculated as one-tenth of the last basic pay plus dearness allowance for every six months served.
Comparison Between UPS and NPS
NPS is mandatory for employees hired after 2004 and is market-linked, with contributions at 10% from the employee and 14% from the employer. UPS contributions are equal at 10% each from employee and employer. UPS includes a government contribution of 8.5% of basic pay plus dearness allowance to form a pool corpus ensuring pension payouts. NPS payouts depend on the accumulated corpus and market returns, with no assured pension amount.
Option to Switch and Flexibility
Employees opting for UPS by 30 September 2025 have a one-time option to revert to NPS. This switch can be made up to one year before retirement or three months before voluntary retirement. Once switched back to NPS, employees cannot return to UPS. This flexibility aims to help employees plan their retirement finances more effectively.
Challenges in UPS Adoption
Despite awareness drives by the Department of Pension and Pensioners’ Welfare, uptake remains low. Many employees prefer the OPS due to its no-contribution and assured pension benefits. Employee unions continue to demand a full return to OPS. Concerns about the adequacy of UPS benefits compared to OPS and the mandatory contributions under UPS deter some employees from opting in.
Regulatory Framework
The Central Civil Services (Implementation of the Unified Pension Scheme under the National Pension System) Rules, 2025, notified on 2 September 2025, govern service matters of employees choosing UPS. These rules outline eligibility, contributions, pension calculation, and switching options to provide a clear framework for implementation.
Questions for UPSC:
- Critically discuss the advantages and disadvantages of defined benefit pension schemes like the Old Pension Scheme compared to defined contribution schemes such as the National Pension System.
- Examine the role of government pension schemes in ensuring social security for public sector employees and analyse their impact on fiscal sustainability.
- What are the challenges in implementing pension reforms in large public sector workforces? How can policy balance employee welfare with financial prudence?
- Estimate the effects of pension scheme choices on retirement income security and labour market behaviour among government employees in India.
