The government has notified the framework for the Unified Pension Scheme (UPS) as an option under the National Pension System (NPS) for central government employees. In a circular dated January 25, 2025, the Department of Financial Services (DFS) stated that this scheme will be operational starting April 1, 2025, and detailed the eligibility criteria, benefits, and other key provisions of UPS.

This pension scheme intends to provide an assured payout, making it an attractive choice for eligible employees. Let’s understand in detail;

What is the Unified Pension Scheme?

The Unified Pension Scheme is a new pension option rolled out for central government employees who are covered under the NPS. Employees have the option to choose either of the schemes (such as the option for UPS instead of NPS) or continue with the existing NPS structure without availing of the benefits of UPS.Central Government Employees Under NPS Can Opt For UPS

The scheme promises an assured payout calculated as a percentage of the employee’s basic pay and dearness allowance, along with several other features to make retirement benefits more attractive.

However, how would you know if you’re eligible for this scheme? Let’s break it down.

To qualify for the UPS, the central government employees need to meet certain specific conditions, such as;

1) Superannuation after 10 years of service: Employees retiring after completing a minimum of 10 years of qualifying service are eligible for the assured payout under this scheme.

2) Retirement FR 56 (j): The DFS circular clarifies that if the government retires an employee under the Fundamental Rule 56 (j) - excluding cases of penalty under Central Civil Rules, 1965, the assured payout becomes applicable from the date of such retirement.

3) Voluntary Retirement: Employees who opt for voluntary retirement after completing a minimum of 25 years of qualifying service are eligible for the payout under UPS, which begins from the date the employee would have superannuated had they continued in service.

There are some key exclusions to the eligibility criteria as well, namely;

The assured payout does not apply to employees dismissed, removed from service, or those of resign. The circular implies that such cases would automatically disqualify the employee from availing of the UPS benefits.Family Pension: Should Govt Employees List All Family Members In Service Book? Check Delhi HC Ruling

What Are The Key Benefits Of UPS?

The UPS offers multiple benefits to ensure the financial security of retirees. When it comes to different kinds of payouts, this is what pensioners get;

1) Assured Payouts: Full payout at 50 per cent of the average pay (calculated over 12 months) for employees with a minimum of 25 years of qualifying service.

2) Proportionate Payouts: The scheme assures proportionate payouts for employees with less than 25 years of service. A guaranteed minimum payout of Rs 10,000 per month for those retiring after completing at least 10 years of service.

3) Family Payout: In the event of the payout holder’s demise post-superannuation, 60 per cent of the assured payout will be extended to the legally wedded spouse. This payout also includes dearness relief, calculated similarly to the dearness allowance for serving employees.

4) Payout post Voluntary Retirement: In cases of voluntary retirement after a minimum of 25 years of qualifying service, an assured payout will commence from the date on which the employee would have superannuated if he had continued in service.

5) Lump-Sum Payment: A one-time payment equivalent to 10 per cent of monthly emoluments (basic pay + dearness allowance) for every six months of qualifying service. This lump sum payment will not affect the quantum of assured payout, the circular clarifies.Financial Planning: 4 Key Steps To Tidy Up Your Finances in 2025

The corpus under the Unified Pension Scheme option will comprise of two funds including;

- An individual corpus with employee contribution and matching Central Government contribution; and

- A pool corpus with additional Central Government contribution.

This is how the contribution works under UPS;

The contribution of employees will be 10 per cent of (basic pay + Dearness Allowance). The matching Central Government contribution will also be 10 per cent of (basic pay + Dearness Allowance).

Both contributions will be credited to each employee’s individual corpus.

Will there be any additional contribution?

Yes, the circular states that the Central Government will provide an additional contribution of an estimated 8.5 per cent of (basic pay + Dearness Allowance) of all employees who have chosen the Unified Pension Scheme option, to the pool corpus on an aggregate basis.

The additional contribution is for supporting assured payouts under the Unified Pension Scheme option.

Key Things To Note;

Investment Options: Employees can choose investment patterns for their individual corpus, regulated by the Pension Fund Regulatory and Development Authority (PFRDA). If no choice is made, a ‘default pattern’ will apply.

Transfer of NPS Corpus: For existing employees opting into the UPS, their NPS corpus will be transferred to the UPS individual corpus.

Benchmark Corpus: A benchmark corpus value will be calculated by PFRDA to ensure employees meet the minimum thresholds for the assured payout. Employees can make additional contributions to fill any gaps.Budget 2025: Central Government To Double Minimum Pension Under Atal Pension Yojana, Says Report