After giving a nod to the Unified Pension Scheme (UPS) in August last year, the Finance Ministry on late night Friday notified the new scheme as an option under the National Pension System (NPS) for the employees of the central government who joined on or after January 1, 2004. The new optional pension scheme will have an assured payout of Rs 10,000 for employees superannuating after qualifying service of 10 years and “full assured payout” after a minimum 25 years of qualifying service, the notification said. The UPS, which will come into effect from April 1, is expected to benefit over 23 lakh central government employees. The scheme will see a hike in the government's contribution to 18.5 per cent of the combined sum of basic pay and dearness allowance from 14 per cent earlier, while the share of the employee will be the same at 10 per cent. Assured payout Under the UPS, there will be an assured payout at the rate of 50 per cent of the average basic pay of 12 months immediately prior to superannuation. In case of lesser qualifying service period, there will be proportionate payment. For cases of voluntary retirement, the UPS option will be available after a minimum 25 years of qualifying service and assured payout will start from the date on which the employee would have superannuated, if he/she had continued in service. The UPS will also be available for employees compulsorily retired under fundamental rule 56 (j), which is not a penalty under central civil services rules, the notification said. However, assured payout will not be available in case of removal or dismissal from service or resignation of the employee. “In such cases, the Unified Pension Scheme option shall not apply,” it said. In case of death of the payout holder after superannuation, family payout at the rate of 60 per cent of the admissible payout before his demise, will be assured to the legally wedded spouse, the notification said. Dearness Relief will be available on the assured payout and family payout, and it will be worked out in the same manner as DA. Corpus and investment There will be two funds under the UPS: one, an individual corpus with employee contribution and matching central government contribution; and two, a pool corpus with additional central government contribution. The contribution of employees will be 10 per cent of (basic pay + Dearness Allowance (DA) with an equivalent matching central government contribution. Both will be credited to each employee’s individual corpus. Separately, the central government will provide an additional contribution of an estimated 8.5 per cent of (basic pay + DA) of all employees who have chosen UPS, to the pool corpus on an aggregate basis. “The additional contribution is for supporting assured payouts under the UPS,” the notification said. The employees will be able to make investment choices for the individual corpus only, which would be regulated by the Pension Fund Regulatory and Development Authority (PFRDA). There will also be a ‘default pattern’ of investment defined by PFRDA. The investment decisions for the pool corpus will be taken solely by the central government. UPS vs NPS vs OPS The provisions of the UPS will also be applicable, mutatis mutandis, to past retirees of NPS, who have superannuated before the operationalisation date of the UPS. Such superannuated employees will be paid arrears for the past period along with interest as per Public Provident Fund rates, the notification said. The UPS approved last year has been seen as a political response to the festering grouse among government employees, who form a vocal political constituency. The government employees had raised grievances about inadequate stability of income and security to families under the earlier NPS. The UPS is expected to cost around Rs 6,250 crore in the first year of its rollout along with extra expenditure of Rs 800 crore towards arrears of already retired employees, as per government estimates detailed at the time of the approval of the scheme. The debate over pension for government employees has been a contentious issue among states also. States of Rajasthan, Chhattisgarh, Jharkhand, Punjab and Himachal Pradesh had announced reverting to the OPS from NPS in 2023, which had led to concerns over the impact on their fiscal health. In January 2023, the Reserve Bank of India (RBI) had flagged concerns about strain on government finances for states opting to revert to OPS. Under the old pension scheme, which was an unfunded, non-contributory scheme, government employees used to get defined benefits post retirement – 50 per cent of their last drawn salary as monthly pension. Under the NPS, which covers employees who joined service post January 2004, contributions are defined but benefits depend on the market.
