The finance ministry issued a notice for the implementation of the Unified Pension Scheme (UPS) for central government employees. In the notice feature and details about implementation of Unified Pension Scheme from April 1, 2025 were explained.
What is in Unified Pension Scheme (UPS) notification?
The notice issued by finance ministry is complex and not easy to comprehend. Here is it in simple language and can be understand easily.
Minimum Gurranted Pension:
Here are discussed three cases with different service duration to make the complete understanding of structure of UPS to employees of central government.
Case 1: 25 Years of Service
- If an employee’s average basic salary for the first 12 months after retirement is ₹50,000, and the employee has worked for 25 years while contributing 10% monthly, the pension would be calculated as:
- Pension = ₹25,000 + Dearness Relief (DR) (50% of the basic salary).
Case 2: 15 Years of Service
If an employee has done service of 15 years and the salary structure of average basic pay 50,000 for the first 12 months after retirement the pension would be ₹15,000 + DR (calculated at a rate of 30%).
Case 3: 10 Years of Service
And an employees with 10 years of service with the salary structure of average basic pay 50,000 for the first 12 months after retirement will receive the prescribed minimum pension amount, which is ₹10,000 + DR under the UPS.
Agency for Regulations:
Pension Fund Regulatory and Development Authority (PFRDA) may be the agency to issue regulations for operationalizing the UPS.
Key Insight for Unified Pension Scheme
When calculated as a percentage, the pension amount is approximately double the number of years of service. As an example
- An employee with 20 years of service and a basic pay of ₹40,000 would get a 40% pension or ₹16,000 + DR.
This simplified method combines longer tenure with more benefits while ensuring retired employees’ financial stability.
Employees Contributions in Unified Pension Scheme:
- Employees must contribute 10% of their basic salary and Dearness Allowance (DA) under the scheme, which retains the NPS contribution-based model.
- To improve retirement benefits, the government’s share has been increased to 14%.
Eligibility Criteria for Unified Pension Scheme:
For central government employees who started working after January 1, 2004.
Until they choose the UPS, employees covered by the previous pension plan will keep receiving their benefits.
Benefits of a Family Pension:
A guaranteed pension, calculated using the same 50% formula of the employee’s last drawn salary, will be given to the family in the case of an employee’s death.
Flexibility in Withdrawal:
In times of emergency, such as when children joined for higher education or some medical emergencies the UPS allows for partial withdrawals.
Reasons behind the Unified Pension Scheme
The differences between NPS and the previous pension system were supposed to be resolved by the Unified Pension Scheme. It combines the features of a contribution-based pension scheme while offering employees of the government social security and a stable income after retirement. The government’s aim to developing a pension system that is a financially secure is also reflected in this plan.
The Unified Pension Scheme’s effects
Improved Financial Security: The higher government contributions and the guaranteed minimum pension will help employees and family members.
Simplification of process:
The management of retirement benefits is made more transparent and effective by the unification of pension plans.
Increased Flexibility:
The plan effectively addresses real-life unforeseen circumstances through partial withdrawals and family pension benefits.
Also Read: National Pension Scheme, Benefit, Features, Pros, cons
