Central govt notifies unified pension scheme for employees
New Delhi: The Union finance ministry has officially notified the implementation of the Unified Pension Scheme (UPS) as an option under the National Pension System (NPS) for central government employees starting April 1, 2025. This new scheme will ensure guaranteed retirement benefits for eligible employees.
According to the ministry’s notification dated January 24, the Unified Pension Scheme will apply to Central Government employees who are already covered under the National Pension System and choose this option. The Pension Fund Regulatory and Development Authority (PFRDA) is expected to issue regulations to operationalize the UPS, with the effective start date set for April 1, 2025.
On August 24, 2024, the Union cabinet, led by Prime Minister Narendra Modi, approved a new pension policy that affects nearly 2.3 million central government employees. This framework guarantees a monthly payout equivalent to 50% of an employee’s basic pay, addressing concerns from federal staff unions about the need for assured retirement benefits.
A committee, chaired by cabinet secretary-designate TV Somanathan and previously headed by the finance secretary, was established in April 2023 to re-evaluate the existing pension system known as the new pension scheme or NPS. This reevaluation was prompted by ongoing grievances that escalated into political controversies, notably with some opposition-ruled states reverting to the older, unfunded Old Pension Scheme (OPS).
The upcoming Unified Pension Scheme will provide 50% of the average basic pay drawn by a federal employee over the 12 months leading up to retirement, given they have completed at least 25 years of service. The UPS will be activated on April 1, 2025.
This new policy fulfills a significant request from the joint consultative machinery, which serves as a forum for resolving disputes between federal staff and the central government. Under the UPS, employees who have served less than 25 years but more than 10 years will receive a pension on a proportional basis.
Moreover, the UPS introduces family or survivor-pension benefits set at 60% of the final salary of a deceased employee. Employees with a minimum of 10 years of service who retire will be assured a monthly pension of ₹10,000.
The UPS will be linked to the Consumer Price Index for Industrial Workers (CPI-IW), which serves as a measure of price changes monitored by the labour bureau. This index will be utilized to calculate dearness relief, providing a financial aid mechanism for pensioners to counteract inflation.
All employees who retired after 2004 will have the option to choose the UPS, while the option to remain under the NPS will still be available. Employees joining before April 2004 will continue under the OPS, which guarantees a fixed pension amounting to 50% of their last drawn salary upon retirement.
Previously reported insights indicated that while a system guaranteeing a fixed monthly payout was favored, reverting fully to OPS was ruled out. The NPS, implemented as a fundamental fiscal reform in 2004, is a market-linked, fully funded system. The OPS was deemed a fiscal burden due to its unfunded nature. Under the NPS, pension funds are invested in equities, meaning the pension amount is directly influenced by market returns.
A fully funded pension scheme entails annual allocations within the budget and has the capacity to fulfill both current and future financial responsibilities based on investment returns and mandatory contributions.
During the Union Budget presentation on July 23, Union finance minister Nirmala Sitharaman noted that the Committee reviewing the NPS had made significant advancements. She expressed satisfaction with the collaborative approach taken by the National Council of the Joint Consultative Machinery for Central Government Employees, emphasizing that a solution will be developed to address pertinent issues while ensuring fiscal responsibility for the benefit of the public.
