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This move is expected to address widespread dissatisfaction with the New Pension Scheme (NPS) and provide a more stable retirement benefit for government employees.
NEW DELHI: The Union Cabinet on Saturday approved a major overhaul of India’s pension system with the introduction of the Unified Pension Scheme (UPS), set to take effect from April 1, 2025. This move is expected to address widespread dissatisfaction with the New Pension Scheme (NPS) and provide a more stable retirement benefit for government employees.
The UPS introduced several key changes aimed at providing government employees with more predictable and stable retirement benefits. Unlike the NPS, which offers a variable pension based on market-linked returns, the UPS guarantees a fixed pension amount. Retirees will receive 50% of their average basic pay from the last 12 months before retirement, provided they have completed at least 25 years of service. For those with fewer than 25 years but at least 10 years of service, the pension will be adjusted proportionately.
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In addition to the assured pension, the UPS guarantees a minimum pension of ₹10,000 per month for employees retiring with a minimum of 10 years of service. Family members of deceased retirees will benefit from a family pension amounting to 60% of the last drawn pension. To counteract inflation, these pensions will be adjusted based on the All India Consumer Price Index for Industrial Workers (AICPI-IW), similar to the adjustments for serving employees.
Another notable feature of the UPS is the lump-sum payment at superannuation, which will be calculated as 1/10th of the monthly emolument (pay plus dearness allowance) for every six months of completed service, in addition to the standard gratuity. This reform is expected to benefit around 23 lakh Central Government employees, with the possibility of adoption by state governments extending its reach to over 90 lakh employees nationwide.
The UPS will also benefit past retirees under the NPS, with arrears paid at Public Provident Fund (PPF) rates. Employees will have the option to choose between the NPS and the UPS, with the government increasing its contribution to the scheme from 14% to 18.5% without raising employee contributions.
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The introduction of the UPS is a direct response to mounting criticism of the NPS, which was implemented in 2004 as a reform to replace the Old Pension Scheme (OPS). The OPS provided a guaranteed pension but became financially unsustainable due to increasing pension liabilities. The NPS, in contrast, was a funded scheme with contributions from both employees and the government, but lacked assured returns, leading to widespread dissatisfaction among employees.
Political considerations also play a role in this reform. Opposition parties have leveraged the discontent with the NPS to their advantage, leading several states to revert to the OPS. The UPS is seen as a strategic move by the Centre to garner support ahead of key Assembly elections in Jammu & Kashmir, Haryana, Maharashtra, and Jharkhand.
