The Union Finance Ministry has officially notified the operationalisation of the Unified Pension Scheme (UPS) under the National Pension System (NPS) for central government employees. This new scheme, set to take effect on April 1, 2025, guarantees retirement benefits for federal workers, offering a fixed and assured pension structure.
The January 24 notification from the finance ministry clarifies that the Unified Pension Scheme will apply to central government employees currently under the National Pension System who choose to opt for this new scheme. According to the ministry’s statement, the Pension Fund Regulatory and Development Authority (PFRDA) may issue further regulations to facilitate the implementation of the UPS. The scheme is scheduled to begin on April 1, 2025.
This move follows a significant decision made by the Union Cabinet, led by Prime Minister Narendra Modi, on August 24, 2024. The Cabinet approved a revamped pension policy for approximately 2.3 million central government employees, guaranteeing 50% of basic pay as a monthly pension payout. The decision came after demands from federal staff unions, who had long called for guaranteed retirement benefits.
UPS Will Ensure Fixed Monthly Pension And Survivor Benefits
The new Unified Pension Scheme (UPS) will provide central government employees with 50% of their average basic pay from the 12 months preceding retirement, provided they have completed 25 years of service. Employees with less than 25 years but more than 10 years of service will receive a pension on a proportionate basis.
The UPS also provides family or survivor pension benefits, set at 60% of the deceased employee’s last-drawn salary. Employees who retire with at least 10 years of service will receive a fixed monthly pension of ₹10,000.
Moreover, the scheme will be indexed to the Consumer Price Index for Industrial Workers (CPI-IW) to calculate dearness relief, ensuring pensioners receive compensation for inflation.
Eligibility And Transition Options
The UPS will be open to all employees who retired after 2004. For those employees who are already part of the existing National Pension System, the option to continue with NPS will remain available. Employees who joined government service before April 2004 will continue under the Old Pension Scheme (OPS), which offers a fixed pension of 50% of the last drawn salary after retirement.
This change represents a key milestone in the long-running discussions surrounding government employees’ retirement benefits. The Joint Consultative Machinery, a platform for federal staff to address grievances, had long advocated for a guaranteed pension system.
Addressing Fiscal Concerns And Maintaining Prudence
The move to implement the Unified Pension Scheme comes after the government reviewed the existing pension framework. In April 2023, a panel led by the cabinet secretary-designate, TV Somanathan, was tasked with revising the previous pension system, known as the New Pension Scheme (NPS). This followed mounting grievances and political controversy, with some opposition-led states opting for the old, fiscally burdensome OPS.
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The NPS, implemented in 2004, is a market-linked, fully funded system, where pension amounts depend on investment returns. The scheme had replaced the unfunded OPS, which required the government to bear future pension liabilities. However, the NPS system has faced criticism due to the uncertainty tied to market returns.
Government’s Commitment To Fiscal Prudence
In the Union Budget presented on July 23, Union Finance Minister Nirmala Sitharaman acknowledged the progress of the committee tasked with reviewing the NPS. She highlighted that the National Council of the Joint Consultative Machinery for Central Government Employees had engaged constructively in finding a solution that balanced the concerns of employees with fiscal responsibility.
The new system is design to address the issues raise by employees while ensuring the sustainability of government finances, particularly with regard to pension obligations.
Looking Ahead: A More Secure Retirement For Government Employees
The launch of the UPS in April 2025 further marks a pivotal shift in the retirement benefits system for central government employees. It promises greater financial security for federal workers, offering a more predictable and guaranteed retirement income. The UPS aligns with the government’s focus on maintaining fiscal prudence while improving the welfare of employees who have long sought retirement benefits that are secure and sustainable.
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