What Is Unified Pension Scheme Approved by Cabinet? | EXPLAINED

Union Pension Scheme: The Union Cabinet, chaired by Prime Minister Narendra Modi on Saturday approved the Unified Pension Scheme (UPS). The UPS will be implemented from April 1, 2025. Unified Pension Scheme is the latest pension scheme for government employees. Under the UPS, there will be a provision of a fixed assured pension, unlike the New Pension Scheme (NPS) which does not promise a fixed pension amount.

The UPS aims to provide a more stable and predictable retirement income compared to the existing New Pension Scheme (NPS).

Under the UPS, retirees will receive a fixed assured pension amounting to 50 percent of their average basic pay drawn over the last 12 months prior to retirement, provided they have completed a minimum of 25 years of service. For those with shorter service periods, the pension will be proportionately adjusted, with a minimum service requirement of 10 years.

In addition to the assured pension, the UPS includes a fixed family pension, set at 60 percent of the employee’s basic pay, payable immediately upon the employee’s death. The scheme also guarantees a minimum pension of Rs 10,000 per month for retirees with at least 10 years of service. The pensions under the UPS will be subject to inflation indexation, ensuring that the real value of the pension is maintained.

Gratuity provisions under the UPS will provide a lump-sum payment equivalent to 1/10th of the monthly emolument (pay plus dearness allowance) for every six months of service completed at the time of superannuation.

Central government employees will have the option to either remain under the NPS or transition to the UPS. This choice extends to those who have already retired under the NPS from 2004 onwards, including those retiring until March 31, 2025. These retirees will receive benefits under the UPS and arrears for the period since their retirement.

The NPS, which has been in place since January 2004, is a voluntary investment program designed for long-term retirement savings, initially for government employees and later expanded to all sectors. It offers a combination of Tier 1 and Tier 2 accounts, with the former being non-withdrawable until retirement and the latter allowing early withdrawals. The NPS provides tax benefits under Section 80 CCD of the Income Tax Act, with a tax-free lump sum withdrawal of up to 60 percent of the corpus upon retirement.

Last year, the finance ministry set up a committee under Finance Secretary TV Somanathan to review the pension scheme for government employees and suggest any changes, if needed, in light of the existing framework and structure of the National Pension System.

Several non-BJP-ruled states have decided to revert to the DA-linked Old Pension Scheme (OPS) and also employee organisations in some other states have raised demand for the same.

Briefing media, Cabinet Secretary-designate TV Somanathan said the new scheme is applicable from April 1, 2025.

The benefits of the Unified Pension Scheme are applicable for those retired and retiring till March 31, 2025, with arrears, he added.