Unified Pension Scheme: The Unified Pension Scheme (UPS) has been introduced by the central government as an alternative to the National Pension System (NPS). This scheme is scheduled to come into effect on April 1, 2025, as per the official government announcement made on January 24.
The UPS will be available to central government employees who are already enrolled in the NPS and opt for this new scheme. The Finance Ministry has stated that eligible central government employees under the NPS now have the choice to switch to the Unified Pension Scheme within the NPS framework.
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What is UPS
The implementation of the UPS program is a result of the ongoing request from government employees for the reinstatement of the previous pension scheme (OPS), which ensured retirees received 50% of their final salary as pension.
Under this updated pension plan, government employees must contribute 10% of their basic salary, along with the dearness allowance, while the government will contribute 18.5%. Additionally, there will be a separate pooled fund supported by an extra 8.5% contribution from the government.
The UPS program provides participants with a pension equivalent to 50% of the average basic salary from the last 12 months.
The recently implemented UPS guarantees employees a pension equal to 50% of their average basic pay, based on the calculation of the average salary over the 12 months prior to retirement. This pension benefit is available to individuals who have completed at least 25 years of service. Employees with 10 to 25 years of service will receive a prorated pension amount.
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Employee benefits at retirement
Guaranteed Pension: Employees are entitled to receive 50% of their average basic pay from the last 12 months before retirement.
Dearness Relief: Regular pension increments will be granted to ensure pension alignment with inflation rates.
Family Pension: In the unfortunate event of an employee’s demise, family members will receive 60% of the pension.
Superannuation Benefits: In addition to gratuity, a lump sum payment will be provided upon retirement.
Minimum Pension: Employees with a minimum of 10 years of service will receive a pension of at least Rs 10,000 per month.
Voluntary Retirement with 25 years of service: Employees who choose to retire voluntarily after completing at least 25 years of service will be eligible. Pension payments will commence from the employee’s anticipated superannuation age.
Under the Unified Pension Scheme (UPS), the government’s contribution will increase to 18.5% from 14%, while the employee’s contribution will remain at 10% of basic pay plus Dearness Allowance (DA). Dearness Relief (DR) will be calculated in the same manner as Dearness Allowance for current employees and will be disbursed only upon commencement of payouts.
Upon retirement, a lump sum payment equivalent to 10% of monthly emoluments (basic pay + Dearness Allowance) will be provided for every six months of qualifying service. It is important to note that this lump sum payment will not affect the guaranteed payout amount.
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Retirees Eligible for UPS Benefits
According to the guidelines, former retirees of the NPS who retired before the implementation of the UPS are eligible to receive benefits under the scheme. These retired individuals will be provided with arrears for the previous period along with interest calculated based on the Public Provident Fund rates, as specified in the official notification.
Transfer and Implementation Process
To ensure a consistent flow of payouts, retirees are required to transfer their NPS funds to the UPS. If the retiree’s corpus does not meet the specified benchmark, they have the option to make additional contributions to reach the required corpus for full payouts. Any excess funds above the benchmark will be refunded to the retiree.
Pension calculations
As per the notification, the formula for calculating lump sum payment is the following:
(1/10 x Total emoluments) x L
Where L = number of six-monthly completed years of service based on the number of months for contribution to an individual’s pension corpus.
“A lump sum payment will be allowed on superannuation @10% of monthly emoluments (basic pay + Dearness Allowance) for every completed six months of qualifying service. This lump sum payment will not affect the quantum of assured payout,” the notification said.
Let’s assume
Basic pay as of the date of superannuation/VR/retirement at 60 years: Rs 45,000
Dearness Allowance (DA) @ 53%: Rs 23,850
Total emolument = Basic + DA = Rs 68,850
Using the formula, the lump will be:
(1/10 x 68,850) x L = Rs 6885 x L
Depending on the year of service, the total L will vary.
| 1/10 of emoluments (Rs) | Length of qualifying service (months of contribution) | Number of completed 6 months | Amount of lump sum (Rs) |
| 6,885 | 10 years (120 months) | 20 | 1,37,700 |
| 6,885 | 15 years (180 months) | 30 | 2,06,550 |
| 6,885 | 20 years (240 months) | 40 | 2,75,400 |
| 6,885 | 25 years (300 months) | 50 | 3,44,250 |
| 6,885 | 30 years (360 months) | 60 | 4,13,100 |
| 6,885 | 35 years (420 months) | 70 | 4,81,950 |
If an employee’s service length is less than 10 years, they will not be eligible for a lump sum payment since UPS does not apply in this scenario..
