Great news for NPS pensioners! Unified Pension Scheme from April 1 – Check benefits, eligibility, DA info

Unified Pension Scheme: The Finance Ministry has announced a new option available for central government employees who joined on or after January 1, 2004, under the National Pension System (NPS). According to a statement from the ministry, central government employees covered by the NPS can now select the Unified Pension Scheme as an option under the NPS.

The Pension Fund Regulatory and Development Authority (PFRDA) is expected to establish regulations for the implementation of the Unified Pension Scheme. The Unified Pension Scheme is set to become operational on April 1, 2025.

The UPS is projected to be advantageous for more than 2.3 million central government workers. Under the scheme, the government's contribution will increase to 18.5% of the total amount of basic pay and dearness allowance, up from the previous rate of 14%. Meanwhile, employees will continue to contribute 10 percent towards their pensions.

Benefits of UPS

The introduction of the UPS program comes in response to the persistent request from government employees for the restoration of the old pension scheme (OPS), which ensured that retirees received 50 per cent of their final salary as pension.

Under this new pension scheme, government employees will be required to contribute 10 per cent of their basic salary along with the dearness allowance, while the government will contribute 18.5 per cent. In addition, there will be a separate pooled fund supported by an additional 8.5 per cent from the government.

The UPS program guarantees participants a pension equal to 50 per cent of the average basic salary from the last 12 months.

Employee benefits at retirement

Guaranteed Pension: Employees will receive 50% of their average basic pay from the last 12 months before retirement.

Dearness Relief: Regular pension increases will be provided to ensure alignment with inflation trends.

Family Pension: In the event of an employee's passing, family members will be entitled to 60% of the pension.

Superannuation Benefits: Alongside gratuity, a lump sum payout will be given upon retirement.

Minimum Pension: Employees with at least 10 years of service will receive a minimum of Rs 10,000 per month.

Voluntary Retirement with 25 years of service: Employees who opt for voluntary retirement after completing a minimum of 25 years of service will be eligible. The payout will begin from the employee's projected superannuation age.

Central government employees currently enrolled in the National Pension Scheme (NPS) as well as those who may join in the future have the choice to switch to the Unified Pension Scheme (UPS) or continue with their existing NPS. It is important to note that once the decision to transition to the UPS is made, it is irreversible.

DA and DR under UPS

In the UPS, the government contribution will increase to 18.5% from 14%, while the employee contribution will remain at 10% of basic pay plus DA (Dearness Allowance). Dearness Relief will be calculated in the same way as Dearness Allowance for current employees and will only be paid out when payouts begin. Upon retirement, a lump sum payment of 10% of monthly emoluments (basic pay + Dearness Allowance) will be granted for every six months of qualifying service. This lump sum payment will not impact the guaranteed payout amount.

Retirees under NPS

As per guidelines, UPS will be extended to former retirees of the NPS who retired prior to the implementation of the UPS. These retired employees will receive arrears for the previous period with interest based on Public Provident Fund rates, as outlined in the notification.

Transfer and Implementation

In order to secure assured payouts, employees must transfer their NPS corpus to the UPS. If the employee's corpus falls short of the set benchmark, they may make additional contributions to reach the required corpus for full payouts. Excess corpus above the benchmark will be returned to the employee.

UPS vs NPS vs OPS

The approval of the Universal Pension Scheme (UPS) last year was viewed as a political response to the growing dissatisfaction among government employees. Concerns had been raised by government employees regarding the insufficient stability of income and security for their families under the previous National Pension System (NPS). The UPS is projected to cost approximately Rs 6,250 crore in its first year of implementation, with an additional expense of Rs 800 crore allocated towards retroactive payments for retired employees, according to government estimates provided at the time of the scheme's approval.

The issue of pension reform for government employees has also been a point of contention among various states. In 2023, states such as Rajasthan, Chhattisgarh, Jharkhand, Punjab, and Himachal Pradesh announced their intention to transition back to the Old Pension Scheme (OPS) from the NPS, raising concerns about the potential impact on their fiscal health. In January of the same year, the Reserve Bank of India (RBI) highlighted worries about the strain on state government finances for those choosing to revert to the OPS.