Unified Pension Scheme (UPS) The PFRDA has issued a gazette notification, introducing comprehensive guidelines for implementing the Unified Pension Scheme (UPS). Starting April 1, 2025, this scheme will be available as an alternative for central government employees currently enrolled in the National Pension Scheme (NPS). Here is a thorough explanation addressing common questions about UPS:
UPS: Who is eligible?
According to the official notification, the following categories of central government employees qualify for UPS participation:
1. A current central government employee, i.e. one in service as of April 1, 2025, who is already covered under NPS
2. New recruits in central government services, on or after April 1, 2025. They are required to opt for the same within 30 days of joining.
3. A Central Government employee who was covered under NPS and who has superannuated or voluntarily retired or has retired under Fundamental Rules 56(j) (which is not treated as penalty under Central Civil Services (Classification, Control and Appeal) Rules, 1965), on or before 31st March 2025
4. The legally wedded spouse in case of a subscriber who has superannuated or retired and has died before exercising the option for UPS.
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Opting for UPS? You can’t change your decision!
Staff in categories 1 and 3 must decide about UPS enrolment within three months from April 1, 2025. The selection of UPS, once confirmed, becomes “final and irrevocable.”
The January 2025 notification says: “For the sake of clarity, it is made clear that any employee who has exercised the Unified Pension Scheme option under the National Pension System under this notification, shall not be entitled to and cannot claim any other policy concession, policy change, financial benefit, any parity with subsequent retirees, etc. later, including post-retirement.”
Upon completion of required documentation and PAO approval, subscribers will retain their previous PRAN, now linked to UPS. These individuals may additionally maintain a separate NPS account (Tier I and Tier II) voluntarily under the ‘All Citizen’ scheme.
UPS Contribution Requirements
The gazette specifies: “the monthly contribution of the UPS subscriber shall be ten percent of the basic pay (including non-practising allowance, where applicable) and dearness allowance thereon, which shall be credited to the individual PRAN of the UPS subscriber.”
The central government will provide matching contributions to each subscriber’s PRAN.
Additionally, the Central Government will contribute approximately 8.5% of (basic pay + Dearness Allowance) for employees selecting UPS. This supports guaranteed payments under the UPS programme.
UPS subscribers must complete ten years of qualifying service to receive the minimum assured payment of Rs 10,000/month.
As stated in the notification, “UPS Subscriber shall have the choice of default pattern of pension fund(s) and default investment.”
UPS subscribers can select from PFRDA-registered pension funds. Without an active selection, the default pattern applies automatically. Participants have the flexibility to modify their pension fund selection once per financial year and investment preferences twice annually.
For UPS subscribers who opt for a non-default pattern, these investment alternatives are available:
(i) Full investment allocation in Government securities (Scheme G)
(ii) Selection from these life cycle-based schemes:
(A) Conservative Life Cycle Fund limiting equity exposure to twenty-five percent
(B) Moderate Life Cycle Fund limiting equity exposure to fifty percent
According to an ET report, Rajesh Khandagale, Senior Vice President—NPS, Kfin, says, “Currently, UPS is applicable only for central government employees, and state governments have to decide on their own for implementation of the same. It is a good scheme and will be beneficial to the government employees. As private PFMs (pension fund managers) will also be part of the investment options, employees will have greater choices for their investments. However, annuity service providers will be adversely impacted as the Government has excluded them from the UPS ecosystem.”
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UPS: Possibility of reduced payout
Yes, your final payout can be reduced upon retirement.
The UPS operates as a contributory fund with both subscriber and government contributions. If there is a deficit in your individual corpus compared to the benchmark corpus, “may be replenished by the UPS subscriber at any point in time before or on superannuation or voluntary retirement or retirement under Fundamental Rules 56(j) (which is not treated as a penalty under Central Civil Services (Classification, Control and Appeal) Rules, 1965), as may be applicable.”
Should you not address this shortfall, your retirement payout will see a proportional reduction.
Furthermore, you or your legally wedded spouse can opt to withdraw up to 60% of either the individual corpus or benchmark corpus (selecting the lower amount) available in the UPS-tagged PRAN at the time of superannuation or retirement.
According to the gazette notification, “Provided that in case the individual corpus is more than the benchmark corpus as on the date of superannuation or voluntary retirement or retirement, as may be applicable, the final withdrawal amount shall be calculated on the benchmark corpus and the excess amount in the individual corpus shall be credited to the designated bank account of the UPS Subscriber.”
How is assured payout calculated under UPS?
The calculation of assured payout under UPS is detailed in the Finance Ministry’s FAQs. “the rate of full assured payout will be at the rate of 50% of 12 monthly average basic pay, immediately before superannuation. A full assured payout is payable after a minimum of 25 years of qualifying service. In case of a lesser qualifying service period, a proportionate payout would be admissible. “
The Finance Ministry’s guidelines also specify that “A minimum guaranteed payout of Rs. 10,000 per month shall be assured in case superannuation is after 10 years or more of qualifying service, subject to timely and regular credit of contributions and no withdrawals. In cases of voluntary retirement after a minimum 25 years of qualifying service, assured payout will commence from the date on which the employee would have superannuated if he had continued in service”
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