Context:

The Pension Fund Regulatory and Development Authority (PFRDA) has recently announced the operationalization of the Unified Pension Scheme (UPS), which will offer an assured pension to government employees.

·        The scheme is set to come into effect from April 1, 2025, with a clear framework for the enrolment of both new recruits and existing employees under the National Pension System (NPS).

Key Features of the Unified Pension Scheme (UPS)

The Unified Pension Scheme (UPS) ensures an assured pension of 50% of the average basic pay drawn over the last 12 months before superannuation, subject to a minimum qualifying service of 25 years.

This follows the government's notification on January 24, 2025, for the implementation of UPS for Central government employees already covered under the NPS.

The scheme will apply to:

• • Existing Central government employees covered under NPS as of April 1, 2025.
  • New recruits joining Central government services on or after April 1, 2025.

Assured Pension vs. Market Returns Linked Payout

The UPS offers a fixed pension based on 50% of the average basic pay from the last 12 months before retirement, unlike the market returns linked payouts under the NPS.

This fixed pension provides stability and assurance for employees nearing retirement, especially those with 25 years of service.

However, the benefits will not apply in cases of removal, dismissal, or resignation, as outlined in the PFRDA notification.

A Shift from the Old Pension Scheme (OPS)

The Unified Pension Scheme (UPS) is an alternative to the National Pension System (NPS), which was introduced on January 1, 2004. Unlike the old pension scheme (OPS), which offered a fixed 50% of the last drawn basic pay as a pension, the new UPS is contributory.

·        Employees will contribute 10% of their basic salary and dearness allowance, while the Central government will contribute 18.5%.

·        The payout will depend on returns from the corpus, primarily invested in government debt and stable securities.

Impact on Government Employees

With 23 lakh government employees now eligible to choose between UPS and NPS, the new scheme provides flexibility, especially for those nearing retirement or those already enrolled in NPS.

The UPS offers more financial security with a fixed pension compared to the uncertain market-based returns under NPS.

Conclusion

The introduction of the Unified Pension Scheme (UPS) marks a significant step toward securing the post-retirement financial well-being of government employees. By combining the stability of a fixed pension with some elements of market-linked growth through NPS contributions, the UPS offers a balanced solution.