There are five major components of the UPS benefits, starting with the assurance that government employees will receive half of their average basic pay drawn over their final 12 months in service prior to retirement, as a monthly pension for life. 
| Photo Credit: Getty Images/iStockphoto

The story so far: Last weekend, the Union Cabinet signed off on a major shift in the approach for providing old age income security to Central government employees, setting the stage for a new Unified Pension Scheme (UPS) to be launched on April 1, 2025. About 23 lakh Central government employees are expected to benefit from the new scheme, while those employees who are part of an ongoing pension scheme called the National Pension System (originally called the New Pension Scheme or NPS) will have a one-time option to switch to the UPS. States have been given the option to bring their employees under the UPS framework, and will need to work out the scheme’s funding from their own resources.

What are the benefits being offered under the UPS?

There are five major components of the UPS benefits, starting with the assurance that government employees will receive half of their average basic pay drawn over their final 12 months in service prior to retirement, as a monthly pension for life. This promise is subject to a minimum service of 25 years. The benefits will be proportionately lower for those with lesser service tenures, provided they served for least 10 years in government. The minimum pension amount at superannuation, has been set at ₹10,000 for those with 10 years of service. The UPS also offers a family pension equivalent to 60% of a government worker’s pension at the time of her or his demise, to support their dependents. To provide a hedge against inflation, these pension incomes will be raised in line with the consumer price trends for industrial workers — akin to the dearness relief allowance offered to serving government employees. Last but not the least, the UPS also promises a lumpsum superannuation payout in addition to gratuity benefits at the time of retirement. This will amount to 1/10th of an employee’s monthly emoluments, that is salary + dearness allowance, as on the date of superannuation for every completed six months of service.

How is this different from the current pension system?

Currently, government employees who joined service prior to January 1, 2004, are covered by what has come to be known as the Old Pension Scheme (OPS) that was replaced by the NPS for employees who joined in or after 2004.

Editorial | Middle path: On the Unified Pension Scheme

The OPS also offered employees an assured pension at 50% of last drawn salary, with dearness allowance hikes added along the way, an assured family pension of 60% of the last drawn pension, and a minimum pension of ₹9,000 plus dearness allowances. At the time of retirement, employees could commute 40% of the pension and receive it as a lumpsum. Moreover, for pensioners or family pensioners crossing 80 years of age, an additional 20% pension is given, with that number rising to 30% at 85 years, 40% at 90 years, and 50% at 95 years. Pension incomes are also revised in line with salary updates as per Pay Commission suggestions. The last salary upgrade for government employees kicked in from 2016, based on the Seventh Pay Commission recommendations. A critical difference between the OPS and NPS as well as the UPS, is that its promises were funded straight off the revenues of the government at the time of making payouts. So the liabilities of the OPS were “unfunded”, with no contributions made by employees or the employer, as is the case with non-government formal sector employees whose retirement savings are governed under by the Employees’ Provident Fund (EPF) Act.

The NPS, launched through an executive order by the Atal Bihari Vajpayee government after years of debate about the unsustainability of civil servants’ pension bills, did away with the defined benefits system of the OPS and switched to a ‘defined contribution’ pension regime. 10% of employees’ salaries were remitted to a pension account with a matching contribution from the employer (the Centre, or States as almost all of them switched to the NPS after 2004). These funds were pooled and deployed in market-linked securities, with the option of parking some funds in equity markets, by pension fund managers. At the time of retirement, employees were required to buy an annuity (an insurance instrument that provides a monthly income) with 40% of the accumulated corpus in their NPS account, and withdraw the rest. The Centre had raised its contribution to the NPS to 14% in 2019, but there was no element of certainty offered on NPS members’ pension incomes, like the OPS did. NPS members, including those who may have retired already, can now move to the UPS.

The UPS combines the defined benefit model of the OPS through its promised pension levels and other sops, with the defined contribution NPS mechanism. While employees’ contributions will be limited to 10% of salary as is the case with NPS, the government will contribute a higher 18.5% of salary to the pooled pension accounts. The Centre will also have to bear any gap between the eventual earnings on these contributions, and its assured pension promises under the UPS. It is not clear at this point if the UPS will factor in future Pay Commissions’ recommendations or offer higher pensions for those over 80 years of age, as the OPS did.

Why did the government opt for a change?

Prior to, and after, its launch, the NPS regime had faced a strong pushback from government employees over the loss of any assurance about their likely pension incomes, and the stark contrast in fortunes for post-2004 workers vis-à-vis their predecessors. While this clamour had persisted through the UPA years, the decibel levels against it mounted in recent years, especially as some of the early NPS entrants with fewer years of service started to retire with what they perceived as poor pension benefits. This restiveness eventually became an electoral issue, with Opposition parties such as the Congress promising a return to the OPS for State employees covered by the NPS ahead of some Assembly polls, and effecting the switch after gaining power in a few. The Centre, through the Narendra Modi government’s second innings, pushed back over this reform reversal by States terming these as fiscally irresponsible sops.

However, in March 2023, Finance Minister Nirmala Sitharaman announced a committee to review the NPS for government employees in a way that balances “their aspirations with fiscal prudence”. This panel, headed by former Finance Secretary T.V. Somanathan (now serving as Cabinet Secretary), held wide consultations with employees and other stakeholders, and although its report has not been made public yet, the switch to the UPS has been informed by its parleys. If there was any doubt that UPS’ bouquet of benefits is linked to political considerations after the recent Lok Sabha polls and ahead of several State polls, Information and Broadcasting Minister Ashwini Vaishnaw laid it to rest. While announcing the UPS, he emphasised that Congress-ruled States which announced a return to the OPS were yet to implement it, while Prime Minister Modi had ensured an outcome that will ensure “inter-generational equity”.

How have employees and States reacted? What is the likely impact on finances?

Central government employees have broadly welcomed the UPS provisions as an acknowledgement of the NPS’ problems, but there are still reservations about the contributory aspects of the UPS and the lack of a commutation option like the OPS. Like employee representatives, economists also await more details on the UPS’ contours and math. UPS contributions, including arrears for some, are expected to cost an additional ₹7,050 crore this year. Dearness hikes, as and when announced, will warrant additional funding too. “Assured pensions will add to the government committed expenditure in the future, while reducing the uncertainty for employees. This will have to be built into the fiscal consolidation roadmap going ahead,” remarked Aditi Nayar, ICRA’s chief economist.

While the immediate impact will only be the additional 4.5% contribution towards the UPS, future payouts will be higher but can be absorbed by higher revenue growth, reckoned Bank of Baroda chief economist Madan Sabnavis. “We can look at this as being equivalent to Pay Commission revisions which are absorbed by the system,” he averred.

There are five major components of the UPS benefits, starting with the assurance that government employees will receive half of their average basic pay drawn over their final 12 months in service prior to retirement, as a monthly pension for life. 
| Photo Credit: Getty Images/iStockphoto

The story so far: Last weekend, the Union Cabinet signed off on a major shift in the approach for providing old age income security to Central government employees, setting the stage for a new Unified Pension Scheme (UPS) to be launched on April 1, 2025. About 23 lakh Central government employees are expected to benefit from the new scheme, while those employees who are part of an ongoing pension scheme called the National Pension System (originally called the New Pension Scheme or NPS) will have a one-time option to switch to the UPS. States have been given the option to bring their employees under the UPS framework, and will need to work out the scheme’s funding from their own resources.

What are the benefits being offered under the UPS?

There are five major components of the UPS benefits, starting with the assurance that government employees will receive half of their average basic pay drawn over their final 12 months in service prior to retirement, as a monthly pension for life. This promise is subject to a minimum service of 25 years. The benefits will be proportionately lower for those with lesser service tenures, provided they served for least 10 years in government. The minimum pension amount at superannuation, has been set at ₹10,000 for those with 10 years of service. The UPS also offers a family pension equivalent to 60% of a government worker’s pension at the time of her or his demise, to support their dependents. To provide a hedge against inflation, these pension incomes will be raised in line with the consumer price trends for industrial workers — akin to the dearness relief allowance offered to serving government employees. Last but not the least, the UPS also promises a lumpsum superannuation payout in addition to gratuity benefits at the time of retirement. This will amount to 1/10th of an employee’s monthly emoluments, that is salary + dearness allowance, as on the date of superannuation for every completed six months of service.

How is this different from the current pension system?

Currently, government employees who joined service prior to January 1, 2004, are covered by what has come to be known as the Old Pension Scheme (OPS) that was replaced by the NPS for employees who joined in or after 2004.

Editorial | Middle path: On the Unified Pension Scheme

The OPS also offered employees an assured pension at 50% of last drawn salary, with dearness allowance hikes added along the way, an assured family pension of 60% of the last drawn pension, and a minimum pension of ₹9,000 plus dearness allowances. At the time of retirement, employees could commute 40% of the pension and receive it as a lumpsum. Moreover, for pensioners or family pensioners crossing 80 years of age, an additional 20% pension is given, with that number rising to 30% at 85 years, 40% at 90 years, and 50% at 95 years. Pension incomes are also revised in line with salary updates as per Pay Commission suggestions. The last salary upgrade for government employees kicked in from 2016, based on the Seventh Pay Commission recommendations. A critical difference between the OPS and NPS as well as the UPS, is that its promises were funded straight off the revenues of the government at the time of making payouts. So the liabilities of the OPS were “unfunded”, with no contributions made by employees or the employer, as is the case with non-government formal sector employees whose retirement savings are governed under by the Employees’ Provident Fund (EPF) Act.

The NPS, launched through an executive order by the Atal Bihari Vajpayee government after years of debate about the unsustainability of civil servants’ pension bills, did away with the defined benefits system of the OPS and switched to a ‘defined contribution’ pension regime. 10% of employees’ salaries were remitted to a pension account with a matching contribution from the employer (the Centre, or States as almost all of them switched to the NPS after 2004). These funds were pooled and deployed in market-linked securities, with the option of parking some funds in equity markets, by pension fund managers. At the time of retirement, employees were required to buy an annuity (an insurance instrument that provides a monthly income) with 40% of the accumulated corpus in their NPS account, and withdraw the rest. The Centre had raised its contribution to the NPS to 14% in 2019, but there was no element of certainty offered on NPS members’ pension incomes, like the OPS did. NPS members, including those who may have retired already, can now move to the UPS.

The UPS combines the defined benefit model of the OPS through its promised pension levels and other sops, with the defined contribution NPS mechanism. While employees’ contributions will be limited to 10% of salary as is the case with NPS, the government will contribute a higher 18.5% of salary to the pooled pension accounts. The Centre will also have to bear any gap between the eventual earnings on these contributions, and its assured pension promises under the UPS. It is not clear at this point if the UPS will factor in future Pay Commissions’ recommendations or offer higher pensions for those over 80 years of age, as the OPS did.

Why did the government opt for a change?

Prior to, and after, its launch, the NPS regime had faced a strong pushback from government employees over the loss of any assurance about their likely pension incomes, and the stark contrast in fortunes for post-2004 workers vis-à-vis their predecessors. While this clamour had persisted through the UPA years, the decibel levels against it mounted in recent years, especially as some of the early NPS entrants with fewer years of service started to retire with what they perceived as poor pension benefits. This restiveness eventually became an electoral issue, with Opposition parties such as the Congress promising a return to the OPS for State employees covered by the NPS ahead of some Assembly polls, and effecting the switch after gaining power in a few. The Centre, through the Narendra Modi government’s second innings, pushed back over this reform reversal by States terming these as fiscally irresponsible sops.

However, in March 2023, Finance Minister Nirmala Sitharaman announced a committee to review the NPS for government employees in a way that balances “their aspirations with fiscal prudence”. This panel, headed by former Finance Secretary T.V. Somanathan (now serving as Cabinet Secretary), held wide consultations with employees and other stakeholders, and although its report has not been made public yet, the switch to the UPS has been informed by its parleys. If there was any doubt that UPS’ bouquet of benefits is linked to political considerations after the recent Lok Sabha polls and ahead of several State polls, Information and Broadcasting Minister Ashwini Vaishnaw laid it to rest. While announcing the UPS, he emphasised that Congress-ruled States which announced a return to the OPS were yet to implement it, while Prime Minister Modi had ensured an outcome that will ensure “inter-generational equity”.

How have employees and States reacted? What is the likely impact on finances?

Central government employees have broadly welcomed the UPS provisions as an acknowledgement of the NPS’ problems, but there are still reservations about the contributory aspects of the UPS and the lack of a commutation option like the OPS. Like employee representatives, economists also await more details on the UPS’ contours and math. UPS contributions, including arrears for some, are expected to cost an additional ₹7,050 crore this year. Dearness hikes, as and when announced, will warrant additional funding too. “Assured pensions will add to the government committed expenditure in the future, while reducing the uncertainty for employees. This will have to be built into the fiscal consolidation roadmap going ahead,” remarked Aditi Nayar, ICRA’s chief economist.

While the immediate impact will only be the additional 4.5% contribution towards the UPS, future payouts will be higher but can be absorbed by higher revenue growth, reckoned Bank of Baroda chief economist Madan Sabnavis. “We can look at this as being equivalent to Pay Commission revisions which are absorbed by the system,” he averred.

Finance Minister Nirmala Sitharaman said the new pension scheme is better and will satisfy most government employees.
| Photo Credit: ANI

Accusing Congress of spreading misinformation, Finance Minister Nirmala Sitharaman on Tuesday (August 27, 2024) said the newly launched UPS is a new pension scheme and not a rollback.

“It is not a rollback… it is different from OPS (Old Pension Scheme) and NPS (National Pension System). It is clearly a new package,” she said, adding, the Unified Pension Scheme (UPS) is better and will satisfy most government employees.

UPS is tailored in such a fashion that every calculation fits and even the government is not burdened too much, she said.

Ms. Sitharaman expressed hope that most of the states would adopt UPS “as it has a lot of benefits for employees”.

New Delhi:

Finance Minister on Tuesday joined the government’s pushback against the Congress’s “government of U-turns” jibe over the Unified Pension Scheme, or UPS, proposal. “We are not a government of U-turns… we give flexible, choice-driven governance,” she shot back.

The Finance Minister criticised the Congress for failing to understand the UPS is not a rollback to the pre-2004 pension plan, and that it will improve the current National Pension System, or NPS. She also hit out at non-BJP ruled states, saying, “I feel UPS will be implemented sooner or later…”

However, ministry sources told NDTV the government would not “market” the new pension scheme to states unwilling to adopt it; there is no compulsion to do so, sources explained.

Sources also said the ‘architecture’ of the new pension scheme has been given to all states, whether ruled by the BJP or an opposition party, and it is for each to weigh pros and cons and decide.

Ahead of the 2022 Himachal Pradesh election, for example, the Congress said it would implement the old scheme if it won power. The party secured a strong win, claiming 40 of its 68 seats.

Sources further said the new pension scheme is not applicable to public sector or employees of central or state-run banks, or the armed forces, who will continue with the older scheme.

In a major announcement ahead of elections in Jammu and Kashmir and Haryana in September-October, as well as those in Maharashtra and Jharkhand later this year, the government launched the Unified Pension Scheme – to be implemented from April 1 next year – on Saturday.

READ | “Will Benefit 23 Lakh Staff”: Centre Launches Unified Pension Scheme

“This will benefit 23 lakh central government employees…” Union Minister Ashwini Vaishnaw said, adding that employees would also have the option to choose between the old and new schemes.

The announcement triggered protests from the opposition.

Congress boss Mallikarjun Kharge fired the “government of U-turns” barb, pointing to instances when the Narendra Modi government had to rethink legislations amid fierce protests.

READ | “U In UPS Stands For…”: Mallikarjun Kharge Jabs Centre On Pensions

“Post June 4 (the date on which the April-June Lok Sabha election results were declared), the power of the people has prevailed over the arrogance of power of the Prime Minister…”

“Rollback in the budget regarding long-term capital gain/indexation, sending Waqf Bill to joint parliamentary committee, rollback of broadcast bill, rollback of lateral entry,” Mr Kharge said on X.

In response, BJP spokesperson Tuhin Sinha told NDTV that Congress-ruled states “end up making a mess of finances”. “Every morning, they come and spread lies. They have nothing to do. Unlike the Congress… which messes up finances in states they are in power, like Telangana and Karnataka… the central government takes care before taking key decisions,” he declared.

READ | After ‘ “U-Turn” Swipe, BJP’s Question On Old Pension Scheme

The Congress’ “U-turns” jibe also drew a strong response from senior BJP leader Ravi Shankar Prasad, who asked when the party planned on meeting its election promises. “I want to ask Rahul Gandhi – has his government implemented the old scheme as promised in Himachal Pradesh?”

The UPS retains several features of the pre-2004 pension scheme and, at its core, assures government staff of 50 per cent of their last-drawn basic pay as a lifelong monthly benefit. It also guarantees an assured minimum pension of Rs 10,000 per month on superannuation after a minimum of 10 years.

READ | Unified Pension Scheme Explained In 6 Simple Points

Under the new scheme – introduced by the Atal Bihari Vajpayee government in 2004 – pension payouts have been linked to contributions made by the government and the employee.

In the old scheme employees did not make any contributions.

When the old scheme was announced in 2004 five opposition-ruled states had rejected it.

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The story so far: Fulfilling a long-standing demand of government unions, the Centre on Saturday (August 24, 2024), unveiled a new ‘Unified Pension Scheme’ (UPS) assuring government employees half their last drawn salary as a lifelong monthly benefit.

The UPS, which has been approved by the Union Cabinet, has several other features benefiting pensioners, such as a periodic dearness relief hike in line with inflation and minimum pension of ₹10,000 a month for pensioners with at least 10 years of government service, to name a few.

The announcement has evoked mixed responses from trade unions across the political spectrum. The Bharatiya Mazdoor Sangh (BMS), which is affiliated to the Rashtriya Swayamsevak Singh (RSS) has welcomed the move but has sought more clarity on certain features of the UPS. However, trade unions like the Hindu Mazdoor Sangh, CITU and AITUC, which are affiliated to the Opposition, claimed that the UPS was meant to hoodwink employees.

Editorial | Middle path: On the Unified Pension Scheme

Most parties including the Congress have noted that the implementation of the UPS would be akin to reverting back to the Old Pension Scheme (OPS), implemented originally during the colonial reign. The move is also a surprising rollback by the NDA government as it was the original NDA – the Atal Bihari Vajpayee government – which had scrapped the OPS to establish the new pension scheme (NPS).

Here’s a comparative look at all three schemes.

Old Pension Scheme (OPS)

Under the Pensions Act, 1871, the British established the system of offering pensions to government employees, empowering the Central and State governments to enact rules for disbursal of money. Based on a ‘Defined Benefit’ concept, this pension scheme assured the retiree of 50% of the last drawn basic salary as his pension. The scheme also introduced a ‘Dearness Allowance’ (DA), which was calculated as a percentage of the pensioner’s salary to cushion the effect of rising cost of living and was hiked by the government whenever necessary.

The scheme also offered employees the option to park a portion of their income under the General Provident Fund, which would then be repaid with interest when they retired. The gratuity was capped at ₹20 lakhs and pension was passed on to the family once the retiree passed away.

However, this pension was ‘unfunded’, i.e. there was no corpus (like the Contingency Fund of India) from which the pension was drawn. Hence, employees had no deductions from their salaries for contributing to a pension fund. The government made budgetary allocations to pay pensions under a ‘pay-as-you-go’ system i.e. funds were drawn from the government’s income, such as tax collected from citizens.

As of December 2023, Rajasthan, Chhattisgarh, Jharkhand, Punjab and Himachal Pradesh — all ruled by Opposition parties — have switched to the OPS for their State government employees. However, Punjab still continues to pay staff and government contribution to the New Pension Scheme.

New Pension Scheme (NPS)

Burdened with an ever-increasing pension liability, the Centre scrapped the OPS, replacing it with the New Pension Scheme (NPS) on January 14, 2004. Based on a ‘Defined Contribution’ concept, the NPS had a two-tiered system. Employees who joined service after the rollout of the scheme did not have the option to join the OPS and were allotted a unique Permanent Pension Account Number (PPAN) on joining.

Under the first tier, the government employee had to make a mandatory contribution of 10% of his basic pay and DA and the government would make an equal matching contribution in a pension account. Under the second,optional tier, employees could make their own contribution under a separate account whose withdrawal was at the employees’ discretion.

At the time of retirement (60 years of age), the government employee has to mandatorily invest 40% of the pension received to purchase an annuity which will provide pension for the lifetime of the employees and his dependents. If an employee retires before time, the mandatory purchase of an annuity rises to 80% of the pension amount. This annuity ensures a regular income-stream for retirees.

The NPS instituted the independent Pension Fund Regulatory and Development and Authority (PFRDA) to regulate and develop the pension market. Fund managers such as SBI Pension Fund, UTI Retirement Solution, and LIC Pension Fund were in charge of investing the funds in several financial instruments such as government securities, debt instruments, equity, and asset-backed trusts.

All Central government employees, except members of the Armed Forces, who joined service on or after January 1, 2004, were covered under the NPS. Employees who joined prior to that date had the option of staying with the OPS. Under the OPS, employees could nominate up to three individuals and allocate the share of pension amount to be received.

Unlike the OPS, the NPS has an employee and employer contribution towards a pension fund which builds the individual’s wealth payable at the time of retirement via annuity and lumpsum withdrawals. Voluntary investment in the National Pension scheme by any individual, who is already covered by mandatory schemes like the Employee Provident Fund Organisation (EPFO), is tax-deductible with a maximum limit of ₹1.5 lakh. Also, the 60% lumpsum which can be withdrawn upon retirement is tax-free. All States except Tamil Nadu and West Bengal have implemented NPS.

Unified Pension Scheme (UPS)

The newly-rolled out UPS is similar to the OPS in most material particulars. Retirees are assured of 50% of the basic pay drawn in the last year (following at least 25 years of service). For lesser service (up to ten years), the percentage is reduced proportionately, but the minimum has been fixed to ₹10,000. 60% of the pension drawn by the employee prior to his/her death will be awarded as a family pension. All of the above pensions are assured with inflation indexation. The scheme also assures 10% of the monthly pension amount (pay plus DA) as on date of retirement for every completed six months of service.

While most features of UPS are similar to that of OPS, the new scheme is not unfunded. Similar to NPS, employees will chip in 10% of their salary and the government will contribute 18.5% of the salary. The threshold level of employees will remain frozen at 10% but the government’s contribution will be adjusted higher or lower based on periodic actuarial assessments. UPS will have a retrospective effect, i.e., those who joined after January 1, 2004 and retired under the NPS will now be eligible for UPS.

What are the reactions to UPS?

Ahead of the rollout of the UPS, Prime Minister Narendra Modi met the staff side of the Joint Consultative Mechanism (JCM), which acts as a bridge between Central government employees and the Centre. While the meeting was cordial, the JCM is divided in its opinion post-announcement.

JCM secretary Shiv Gopal Mishra told The Hindu that the UPS was a welcome move, but All India Defence Employees Federation general secretary C. Srikumar said that employees would not accept any formulation of pension where contribution is mandatory.

Similarly, the BMS has sought clarification on the ratio of lump-sum payment on exit, revision of pension by future Pay Commissions, tax benefits, and increase in pension on completion of 80, 85, 90, 95 and 100 years. On the other hand, the Left Unions have blamed the Centre of only furthering its investment of the pension funds of ₹10,53,850 crore of a total of 99,77,165 employees under the NPS in the share market.

The Opposition too has mixed reviews for the new scheme. While Mr. Kharge has credited the Opposition for the Centre’s ‘U-turn’, the All India Professional Congress has welcomed the scheme claiming that “UPS = NPS + Min guarantee. This is prudent & welcome.” On the other hand, Congress’ Pawan Khera has claimed that UPS “appears to be an attack on Dalits, Adivasis and Backward Classes”. Opposition-ruled States like Telangana, Tamil Nadu, Rajasthan too are wary and are ‘studying’ the scheme before deciding on its implementation.

Under the UPS, 23 lakh Central employees will receive hiked pension benefits and if State governments sign on (it is optional), the number of beneficiaries will increase to 90 lakhs. Union Minister Ashwini Vaishnaw has stated that the Centre’s increase in pension contribution will be an additional burden of ₹6,250 crore per year on the exchequer. The decision seems to be targetted at increasing goodwill for upcoming State elections in Delhi, Bihar, Jharkhand, Haryana, Maharashtra and Jammu-Kashmir, where the BJP faces a formidable Opposition.

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The centre on Saturday approved the Unified Pension Scheme (UPS) for central government employees which is expected to impact 23 lakh employees, aimed at providing financial security and stability for government workers post-retirement.

What are some key features of the UPS? 

Assured Pension:

Employees who have served for a minimum of 25 years will receive an assured pension amounting to 50 per cent of their average basic pay over the last 12 months prior to retirement. For those with less than 25 years of service, the pension will be proportionate to their tenure, with the minimum qualifying service period set at 10 years.

Assured Family Pension:

In the unfortunate event of an employee’s demise, their spouse will receive a family pension, assured at 60% of the pension that the employee was drawing before their death.

Assured Minimum Pension:

Even for employees who have completed a minimum of 10 years of service, there is a guaranteed minimum pension of Rs 10,000 per month upon retirement.

Inflation Indexation:

Both the assured pension and the family pension are subject to inflation indexation. This adjustment ensures that the pensions keep pace with inflation.

Dearness Relief:

Similar to serving employees, retirees under the UPS will receive Dearness Relief based on the All India Consumer Price Index for Industrial Workers (AICPI-IW). 

Lump Sum Payment on Superannuation:

In addition to gratuity, employees will receive a lump sum payment at the time of superannuation. This payment will be 1/10th of the employee’s monthly emoluments (including pay and Dearness Allowance) as on the date of retirement, for every completed six months of service. This lump sum payment will not reduce the quantum of the assured pension.

“We are proud of the hard work of all government employees who contribute significantly to national progress. The Unified Pension Scheme ensures dignity and financial security for government employees, aligning with our commitment to their well-being and a secure future,” Prime Minister Narendra Modi said in a post on X. 

The UPS is set to benefit 23 lakh central government employees immediately. However, this number could increase to 90 lakh if state governments opt to join the scheme, extending its benefits to a larger pool of government employees across India.

The announcement came against the backdrop of several non-BJP states deciding to revert to the DA-linked Old Pension Scheme (OPS) and employee organisations in some other states raising demand for the same.

The National Pension Scheme (NPS) has been implemented for all government employees except those in the armed forces joining the central government on or after January 1, 2004.

Most state/Union Territory governments have also notified NPS of their new employees.

Under the OPS, retired government employees received 50 per cent of their last drawn salary as monthly pensions. The amount keeps increasing with the hike in the DA rates. OPS is not fiscally sustainable as it is not contributory, and the burden on the exchequer keeps mounting.