Scheduled for launch on April 1, the scheme aims to address the central issue raised by government employees with regards to the NPS, namely the lack of a guaranteed pension. 
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Scheduled for launch on April 1, the scheme aims to address the central issue raised by government employees with regards to the NPS, namely the lack of a guaranteed pension. The Unified Pension Scheme (UPS) will be introduced for Central Government employees enrolled in the National Pension System (NPS) starting on April 1, 2025. This scheme will be offered as a choice within the NPS framework for employees. The Central government employees and their associated unions have continuously advocated for the reintroduction of the Old Pension Scheme (OPS), which was replaced by the National Pension System (NPS) in January 2004.
One of the primary arguments put forth by these employees and unions is that the OPS provided a minimum and guaranteed pension, a feature lacking in the NPS.
In response to these concerns, the Centre has introduced the Unified Pension Scheme (UPS), which incorporates elements from both the OPS and NPS. Similar to the OPS, the UPS ensures a guaranteed pension for retiring employees.
The Centre unveiled the UPS in August 2024 and recently released detailed operational guidelines outlining the programme's structure, timeline, and rollout plan. Scheduled for launch on April 1, the scheme aims to address the central issue raised by government employees with regards to the NPS, namely the lack of a guaranteed pension.
Before the UPS rollout, MP Dharmendra Yadav requested the government to provide information to the parliament regarding the timeline and potential impact of UPS on existing NPS subscribers. He inquired about the financial sustainability of UPS compared to NPS and also raised concerns about the investment flexibility differences between the two schemes.
In response, Minister of State for Finance Pankaj Chaudhary explained that UPS has been introduced as an option under NPS to offer a guaranteed monthly payout to central government employees post-retirement. The aim is to fulfill the demand for a secure pension while ensuring a fiscally responsible and contributory pension scheme.
“The UPS has been envisaged to address the demand of the employees covered under NPS regarding assured pension after retirement, while ensuring a fiscally responsible funded and contributory pension scheme,” Choudhury noted in his reply.
UPS financial viability
Chaudhary explained that UPS combines features of both defined contribution and defined benefit schemes. It hinges on consistent and promptly invested contributions from both the employee and employer to guarantee payouts to employees.
According to Chaudhary, UPS subscribers are required to contribute 10% of their basic pay and dearness allowance each month, which will be matched by the central government by depositing an equal amount into each subscriber's individual PRAN.
Basic pay and DA
Chaudhary stated that the central government will provide an extra contribution equivalent to approximately 8.5% of basic pay and dearness allowance for all employees choosing the UPS. This additional contribution aims to bolster the pool corpus and ensure stable payouts under the Unified Pension Scheme, ultimately securing the long-term financial sustainability of the UPS.
“Presently, central government subscribers are allowed to choose any of the pension funds registered with PFRDA and exercise investment options from (a) 100% investments in Government securities; (b) Conservative Life Cycle fund with maximum equity exposure capped to 25%; (c) Moderate Life Cycle fund with maximum equity exposure capped to 50%; and (d) Default scheme,” the minister replied to the query about the difference between investment flexibility in NPS and UPS.
NPS compared to UPS
NPS is a defined contribution scheme that offers market-linked returns for post-retirement benefits. The NPS review committee was tasked with suggesting measures to enhance pension benefits for government employees under NPS, while considering fiscal implications and maintaining fiscal prudence to protect citizens, according to Chaudhary.
On the other hand, UPS is a defined contribution scheme with elements of defined benefit that provides assured payouts after retirement.
Government employees currently enrolled in NPS have the option to switch to UPS if they desire.
| Pension type | UPS: Assured pension from pooled corpus NPS: Market-linked pension based on returns |
|---|---|
| Employee contribution | 10% of basic salary + dearness allowance (DA) in both schemes |
| Government contribution | UPS: 10% (matching employee) + additional 8.5% to pooled corpus NPS: 10% (matching employee) |
| Assured pension | UPS: Yes – Assured pension post-retirement NPS: No – Depends on market returns |
| Investment risk | UPS: Lower (due to pooled and guaranteed pension) NPS: Moderate to high (depends on fund choice and market performance) |
| Investment options | UPS: Not yet specified NPS:
|
| Financial benefit | UPS: Additional 8.5% government contribution + pension security NPS: Potentially higher returns but with market risk |
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