The Indian government has officially launched the Unified Pension Scheme (UPS) for the central government employees, with effect from April 01, 2025. This new pension scheme has been introduced as an option under the National Pension System (NPS) with an aim to provide an assured payout and guaranteed pension structure to the central government employees.
The Pension Fund Regulatory and Development Authority (PFRDA) has notified the operationalisation of the UPS. The central government employees will receive an assured pension of ₹10,000 per month upon completion of at least 10 years of service, and a full pension payout of 50% of the average basic salary plus DA after completion of 25 years of service. Under UPS, employee contribution is 10% of the employee’s basic pay plus DA whereas the government will contribute 18.5% of basic pay plus DA.
It is a fund-based pension system where both the employee and the government contribute regularly. This collected and invested money is used to provide monthly pension payouts to the employee after the retirement.
Unified Pension Scheme (UPS) Overview
| Scheme Feature | Details |
|---|---|
| Launch Date | April 1, 2025 |
| Applies To | Central govt employees (existing & new); states optional |
| Minimum Pension | ₹10,000/month (after 10 years of service) |
| Full Pension | 50% of average basic pay (after 25 years of service) |
| Employee Contribution | 10% of Basic + DA |
| Government Contribution | 18.5% of Basic + DA |
| Pension Type | Fund-based (accumulation + investment) with guaranteed minimum pension |
| Gratuity Benefit | Yes |
| Investment Management | Fund invested and managed like NPS |
| Withdrawal Option | Not allowed once opted in |
| Switch from NPS | Optional (one-time, irreversible switch) |
| Managing Authority | Central Government & PFRDA |
Unified Pension Scheme: Features & Benefits
The Unified Pension Scheme offers a more balanced pension structure with its assured payouts and investment-linked payouts, combining elements of defined benefit with defined contribution.
- Assured Pension: The Unified Pension Scheme (UPS) provides a full assured monthly payout that is equal to 50% of your average basic salary in the last 12 months before retirement if you have been in service for at least 25 years. For example, if your average basic pay in the last year was ₹1,00,000 per month, your pension payout will be ₹50,000 per month.
- Guaranteed Minimum Pension: You will be provided a guaranteed pension of minimum ₹10,000 per month upon superannuation if you have worked for at least 10 years.
- Proportional Payout: If your years of service are more than 10 years but less than 25 years, the pension is provided on a pro-rata basis.
- 60% Family Pension: In case of the demise of the retired employee, the family will receive 60% of the pension that the employee was getting.
- Increased Government Contribution: Under UPS, employees contribution is 10% of their basic plus dearness allowance and the government contribution is 18.5% plus dearness allowance. The 18.5% government contribution comprises of 10% direct contribution and 8.5% from pooled support fund.
- Inflation Protection: The Dearness Relief (DR) under UPS provides protection from inflation. The government keeps increasing the DR in line with the All India Consumer Price Index (AICPI-IW) to maintain workers’ purchasing power.
- Gratuity Benefits: UPS also offer gratuity benefits up to a maximum limit of ₹25 lakh, as per the Central Civil Services Pension Rules, 2021.
- Lump Sum Payment: Apart from the assured monthly pension payout, the retirees will also receive a one-time lump sum payment at the time of superannuation, calculated as 10% of the monthly basic pay + DA for every 6 months completed of qualifying service.
While tax benefits are yet to be officially finalised, it is expected that UPS will follow a tax benefit structure similar to the NPS. NPS provides tax deductions under Sections 80C, 80CCD (1B), and 80CCD (2).
Difference between Unified Pension Scheme, National Pension System & Old Pension Scheme
The central government employees were covered under National Pension System (NPS) up until now, and under Old Pension Scheme (OPS) before January 1, 2004. However, now the employees have an option to opt in to the UPS from April 1, 2025. Here is how the UPS is different from previous pension schemes:
- Assured vs market-linked pension: The biggest difference is that the Unified Pension Scheme guarantees a certain amount as pension based on employee’s last salary and years of service while the National Pension System (NPS) is a market-linked scheme. This means that the pension amount you get under NPS depends on the performance of the investments made with your and government’s contributions in the stock market or wherever else the funds were invested. So, there was a risk involved as NPS could potentially give you more or less money depending on the how well the investments turned out. UPS removes this risk by providing an assured pension. Apart from UPS and NPS, the OPS offered a guaranteed pension as it was defined benefit scheme.
- Contribution: While the employee contribution remains the same with 10% of basic salary, government contribution has been increased to 18.5% of basic salary under UPS, up from 14% of basic salary in NPS. The dearness allowance is the same in both schemes. OPS had no contribution from employee and was fully funded by the government.
- Minimum Pension: The UPS provides a guaranteed minimum pension of ₹10,000 per month for the employees with at least 10 years of service but NPS did not have such a guarantee of minimum pension. Old pension scheme on the other hand, provided guaranteed pension to the employees.
- Pension for Spouse: In NPS, the family pension was provided according to the selected annuity plan while in the UPS, the spouse gets 60% of the employee’s last pension. Unlike NPS and UPS, OPS provided full pension benefits for the spouse.
Look to the table below for differences in more features between Unified Pension Scheme, National Pension System and Old Pension Scheme.
| Scheme Feature | Unified Pension Scheme (UPS) | National Pension System (NPS) | Old Pension Scheme (OPS) |
|---|---|---|---|
| Eligibility | Central Govt employees under NPS as of 01/04/2025, new recruits from 01/04/2025, and certain NPS retirees | Govt employees joined on or after 01/01/2004; open to all citizens (voluntary) | Govt employees who joined before 01/01/2004 |
| Employee Contribution | 10% of Basic + Dearness Allowance (DA) | 10% of Basic + DA | No contribution |
| Government Contribution | 18.5% of Basic + DA (10% + 8.5% pooled support) | 14% of Basic + DA | Funded entirely by govt (from budget) |
| Pension Amount | Guaranteed ₹10,000/month (after 10 years of service); 50% of average basic pay of last year (after 25 years of service); Pro-rata for 10-25 years service | Market-linked, based on corpus and investment returns | 50% of last drawn salary |
| Pension Type | Hybrid (Assured + Fund-based) | Defined Contribution (market-linked) | Defined Benefit (assured) |
| Risk | Shared by employee and govt | Market risk borne by employee | No market risk – borne by govt |
| Inflation Adjustment | Yes, via Dearness Relief (DR) linked to AICPI-IW | Possible via annuity plan chosen | Yes, through DR |
| Family Pension | 60% of last pension to family after retiree’s demise | Depends on annuity plan | Yes |
| Gratuity | Yes, as per Central Civil Services rules (max ₹25 lakh) | Yes | Yes |
| Lump Sum Benefit | Yes – 10% of Basic + DA for every 6 months of service (at retirement) | Partial withdrawal allowed under rules | Not applicable |
| Switching Allowed? | Yes (one-time switch from NPS only) | Not applicable | Not applicable |
| Tax Benefits | Details awaited; likely similar to NPS | Yes – under Sections 80C, 80CCD(1B), 80CCD(2) | As per prevailing rules |
Who Can Join the Unified Pension Scheme?
- The central government employees who joined the service on or after January 1, 2004.
- Existing central government employees who are currently covered under NPS and were in service as of April 1, 2025.
- New recruits in the central government services who join on or after April 1, 2025.
- Central government employees who were covered under NPS but retired on or before March 31, 2025 whether through regular retirement or voluntary retirement but met certain conditions such as years of service or retiring under specific rules. Read the official notification for more details on the eligibility criteria.
The option of assured payout under UPS will not be available to the employee who retires or superannuates before completing 10 years of qualifying service or the employee who is dismissed, removed from service or voluntarily resigns.
The Department of Financial Services under government of India has published a very detailed FAQs paper on its official website, which you can read at this link.
Things to know before opting out of NPS?
- Remember these points if you are considering migrating to UPS from NPS:
- Switching to UPS is a one-time decision. Once you opt into UPS, you can not switch back to NPS.
- You may lose the flexible options offered under NPS such as lump-sum payouts or annuity choices.
- You may lose the flexibility in choice of fund managers and investment options.
- NPS provides potential for high returns through its market-dependent returns, although with risks. UPS limits this upside.
How to Register or Switch to UPS?
The window to register or migrate to Unified Pension Scheme is now open from April 1, 2025. The central government employees can visit the official website of Protean CRA (under PFRDA) and fill the application.
Official documents that you should read for details on Unified Pension Scheme:
- UPS Official Notification- Read Here (website of Financial Services Department, GOI)
- FAQs on UPS- Read on official website (Financial Services Department, GOI)