The Indian finance ministry on Saturday (January 25) notified the operationalisation of the Unified Pension Scheme, also known as UPS, for central government employees, effective from April 1.

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In a statement, the finance ministry said that the UPS would apply to central government employees who are covered under the National Pension System (NPS) and chose this option under the NPS.

“Pension Fund Regulatory and Development Authority (PFRDA) may issue regulations for operationalising the UPS. The effective date for operationalisation of the Unified Pension Scheme shall be April 1, 2025,” the statement added.

What does the UPS offer?

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The UPS would offer 50 per cent of the average basic pay drawn by a central government employee during the 12 months prior to retirement, provided they complete 25 years of service.

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Employees with less than 25 years of service but more than 10 years will receive a pension on a proportionate basis.

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The contours of the scheme were drawn up following discussions held under the joint consultative machinery, a platform that provides a mechanism for central government staff to resolve differences with the Centre.

In August last year, the Union Cabinet approved the new pension policy for nearly 2.3 million central government employees. 

This policy unveiled a framework that guaranteed 50 per cent of basic pay as a monthly pension, responding to requests from central government staff unions who sought guaranteed retirement benefits.

New vs Old scheme

Unlike the old pension scheme (OPS), UPS is contributory in nature, wherein employees will be required to contribute 10 per cent of their basic salary and dearness allowance (DA) while the employer's contribution (the central government) will be 18.5 per cent, a report by the news agency PTI said. 

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Under the OPS, effective before January 2004, employees got 50 per cent of their last drawn basic pay as pension.

Employees, under the OPS, were not required to make any contribution. They, however, contributed to the General Provident Fund (GPF). The accumulated amount, along with interest, was paid to the employee at the time of retirement.

As the NPS was less attractive than the OPS, several non-BJP-ruled states decided to go back to the old pension scheme, which offered a DA-linked benefit.

This prompted the Centre to constitute a committee in April 2023 under former Finance Secretary and now Cabinet Secretary-designate TV Somanathan to suggest improvement in the NPS architecture.

(With inputs from agencies)